Annual report pursuant to Section 13 and 15(d)

Revenue Recognition

v3.19.3
Revenue Recognition
12 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
Revenue Recognition
On January 1, 2018, we adopted the new revenue standard using the modified retrospective method for those contracts with remaining service obligations as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.
We recorded a net increase to opening equity of $2.2 million as of January 1, 2018 as the cumulative effect of adopting the new revenue standard. The effect on revenues of adopting the new revenue standard for the fiscal year ended December 31, 2018 is presented in the “Impact on Consolidated Financial Statements” section below.
Disaggregation of Revenue
The following table presents our revenues disaggregated by major revenue source. Sales and usage-based taxes are excluded from revenues.
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(in thousands)
On demand
 
 
 
 
 
Property management
$
186,975

 
$
167,002

 
$
152,890

Resident services
350,457

 
272,176

 
218,097

Leasing and marketing
166,361

 
123,804

 
116,505

Asset optimization
129,916

 
79,640

 
55,039

Total on demand revenue
833,709


642,622


542,531

 
 
 
 
 
 
Professional and other
35,771

 
28,341

 
25,597

Total revenue
$
869,480


$
670,963


$
568,128


On Demand Revenue
We generate the majority of our on demand revenue by licensing software-as-a-service (“SaaS”) solutions to our clients on a subscription basis. Our SaaS solutions are provided pursuant to contractual commitments that typically include a promise that we will stand ready, on a monthly basis, to deliver access to our technology platform over defined service delivery periods. These solutions represent a series of distinct services that are substantially the same and have the same pattern of transfer to the client. Revenue from our SaaS solutions is generally recognized ratably over the term of the arrangement.
Consideration for our on demand subscription services consist of fixed, variable and usage-based fees. We invoice a portion of our fees at the initial order date and then monthly or annually thereafter. Subscription fees are generally fixed based on the number of sites and the level of services selected by the client.
We sell certain usage-based services, primarily within our property management, resident services and leasing and marketing solutions, to clients based on a fixed rate per transaction. Revenues are calculated based on the number of transactions processed monthly and will vary from month to month based on actual usage of these transaction-based services over the contract term, which is typically one year in duration. The fees for usage-based services are not associated with every distinct service promised in the series of distinct services we provide our clients. As a result, we allocate variable usage-based fees only to the related transactions and recognize them in the month that usage occurs.
As part of our resident services offerings, we offer risk mitigation services to our clients by acting as an insurance agent and derive commission revenue from the sale of insurance products to our clients’ residents. The commissions are based upon a percentage of the premium that the insurance company underwriting partners charge to the policyholder and are subject to forfeiture in instances where a policyholder cancels prior to the end of the policy. The overall insurance services we provide represent a single performance obligation that qualifies as a separate series in accordance with the new revenue standard. Our contracts with our underwriting partners also provide for contingent commissions to be paid to us in accordance with the agreements. The contingent commissions are not associated with every distinct service promised in the series of distinct insurance services we provide. We generally accrue and recognize contingent commissions monthly based on estimates of the variable factors identified in the terms of the applicable agreements.
Professional Services and Other Revenues
Professional services and other revenues generally consist of the fees we receive for providing implementation and consulting services, submeter equipment and ongoing maintenance of our existing on premise licenses.
Professional services revenues primarily consist of fees for implementation services, consulting services and training. Professional services are billed either on a fixed rate per hour (time) and materials basis or on a fixed price basis. Professional services are typically sold bundled in a contract with other on demand solutions but may be sold separately. For bundled arrangements, we allocate the transaction price to separate services based on their relative standalone selling prices if a service is separately identifiable from other items in the bundled arrangement and if a client can benefit from it on its own or with other resources readily available to the client.
Other revenues consist of submeter equipment sales that include related installation services, sales of other equipment and on premise software sales. Submeter hardware and installation services are considered to be part of a single performance obligation due to the significance of the integration and interdependency of the installation services with the meter equipment. Our typical payment terms for submeter installations require a percentage of the overall transaction price to be paid upfront, with the remainder billed as progress payments. We recognize submeter revenue in proportion to the number of fully installed units completed to date as compared to the total contracted number of units to be provided and installed. For all other equipment sales, we generally recognize revenue when control of the hardware has transferred to our client, which occurs at a point in time, typically upon delivery to the client.
The majority of on premise revenue consists of maintenance renewals from clients who renew for an additional one-year term. Maintenance renewal revenue is recognized ratably over the service period based upon the standalone selling price of that service obligation.
Contract Balances
Contract assets generally consist of amounts recognized as revenue before they can be invoiced to clients or amounts invoiced to clients prior to the period in which the service is provided where the right to payment is subject to conditions other than just the passage of time. These contract assets are included in “Accounts receivable” in the accompanying Consolidated Financial Statements and related disclosures. Contract liabilities are comprised of billings or payments received from our clients in advance of performance under the contract. We refer to these contract liabilities as “Deferred revenue” in the accompanying Consolidated Financial Statements and related disclosures. We recognized $113.7 million of on demand revenue during the year ended December 31, 2018, which was included in the line “Deferred revenue” in the accompanying Consolidated Balance Sheets as of the beginning of the period.
Contract Acquisition Costs
We capitalize certain commissions as incremental costs of obtaining a contract with a client if we expect to recover those costs. The commissions are capitalized and amortized over a period of benefit determined to be three years. As of December 31, 2018, the current and noncurrent balances of capitalized commissions costs recorded in the lines “Other current assets” and “Other assets” in the accompanying Consolidated Balance Sheets were $6.7 million and $7.8 million, respectively. During the year ended December 31, 2018, we amortized commission costs totaling $5.4 million. No impairment loss was recognized in relation to these capitalized costs.
Remaining Performance Obligations
Certain clients commit to purchase our solutions for terms ranging from two to seven years. We expect to recognize approximately $414.7 million of revenue in the future related to performance obligations for on demand contracts with an original duration greater than one year that were unsatisfied or partially unsatisfied as of December 31, 2018. Our estimate does not include amounts related to:
professional and usage-based services that are billed and recognized based on services performed in a certain period;
amounts attributable to unexercised contract renewals that represent a material right; or
amounts attributable to unexercised client options to purchase services that do not represent a material right.
We expect to recognize revenue on approximately 68.8% of the remaining performance obligations over the next 24 months, with the remainder recognized thereafter. Revenue from remaining performance obligations for professional service contracts as of December 31, 2018 was immaterial.
Impact on Consolidated Financial Statements
The following tables summarize the effects of the adoption of ASU 2014-09 on selected line items within our Consolidated Statements of Operations and Balance Sheets:
 
Year Ended December 31, 2018
 
As reported
 
Balances without adoption of ASU 2014-09
 
Effect of Change
on Net Income
Higher/(Lower)
 
(in thousands)
Revenue
 
 
 
 
 
On demand
$
833,709

 
$
835,465

 
$
(1,756
)
Professional and other
35,771

 
32,886

 
2,885

Total revenue
$
869,480

 
$
868,351

 
$
1,129

Operating expenses
 
 
 
 
 
Sales and marketing
$
166,607

 
$
174,578

 
$
7,971

 
 
 
 
 
 
Net income before income taxes
$
34,300

 
$
25,200

 
$
9,100

Income tax expense (benefit)
(425
)
 
(2,608
)
 
(2,183
)
Net income
$
34,725

 
$
27,808

 
$
6,917

 
Balances at December 31, 2018 - as reported
 
Balances at December 31, 2018 without adoption of ASU 2014-09
 
Effect of Change
Higher/(Lower)
 
(in thousands)
Assets
 
 
 
 
 
Accounts receivable, less allowances
$
123,596

 
$
130,742

 
$
(7,146
)
Other current assets
$
15,185

 
$
8,198

 
$
6,987

Other assets
$
20,393

 
$
12,114

 
$
8,279

Liabilities
 
 
 
 
 
Current portion of deferred revenue
$
120,704

 
$
125,078

 
$
(4,374
)
Deferred revenue
$
4,902

 
$
4,902

 
$


The adoption of ASU 2014-09 had no net effect on the Consolidated Statements of Cash Flows for the year ended December 31, 2018.