Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.10.0.1
Revenue Recognition
6 Months Ended
Jun. 30, 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 three and six months ended June 30, 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.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
On demand
 
 
 
 
 
 
 
Property management
$
46,523

 
$
41,405

 
$
91,842

 
$
81,746

Resident services
85,330

 
64,860

 
162,507

 
125,829

Leasing and marketing
42,841

 
29,325

 
82,257

 
57,140

Asset optimization
32,251

 
19,137

 
63,639

 
36,225

Total on demand revenue
206,945

 
154,727

 
400,245

 
300,940

 
 
 
 
 
 
 
 
Professional and other
9,307

 
6,579

 
17,308

 
13,285

Total revenue
$
216,252

 
$
161,306

 
$
417,553

 
$
314,225


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. We group our SaaS solutions in four primary categories: property management, resident services, leasing and marketing and asset optimization. Each solution category generally represents a different stage of the renter life cycle and the operations of a property owner’s or manager’s rental properties. Each of our solution categories includes multiple product centers that provide distinct capabilities that can be bundled as a package or licensed separately. Each on demand solution is 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. The Company has concluded these promises represent a single performance obligation that includes a series of distinct services since they provide a form of rental real estate management and property operation service that we consider to be substantially similar and which has the same pattern of transfer to the client. The majority of our on demand sales revenue continues to be recognized over time as clients receive and consume the benefits of accessing our on demand solutions.
Consideration for the Company’s 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. Usage-based fees are considered fully constrained until the related 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. Such commissions are variable in nature and are calculated in accordance with the terms of the agreements, which consider, on the policies sold by us, earned premiums less i) earned agent commissions; ii) a percent of premium retained by our underwriting partners; iii) incurred losses; and iv) profit retained by our underwriting partners during the time period. Our estimate of contingent commission revenue considers historical loss experience on the policies sold by us. 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 factors described above.
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: 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. Professional service contracts sold separately generally have terms of one year or less. For bundled arrangements, the Company accounts for individual services as a separate performance obligation 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. In these cases, the transaction price is allocated between separate services in the bundle based on their relative standalone selling prices.
Equipment: The majority of other revenue is related to our sale of submeter hardware and bundled installation services we provide as part of our utility management solutions. We consider the delivery and installation of submeters 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. We also sell other hardware used for storing mail packages and for processing renter payments and invoices to our clients. 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.
On Premise: A small percentage of other revenue is derived from sales of our on premise software solutions, which are distributed to our clients and maintained locally on the client’s hardware. We no longer actively market our legacy on premise software solutions to new clients, and 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 Condensed 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 Condensed Consolidated Financial Statements and related disclosures. We recognized $86.7 million of on demand revenue during the six months ended June 30, 2018, which was included in the line “Deferred revenue” in the accompanying Condensed Consolidated Balance Sheet as of the beginning of the period.
Contract Acquisition Costs
Under the new revenue standard, we are required to initially capitalize certain contract acquisition costs consisting of commissions earned when contracts are signed. We will subsequently amortize such costs to expense over a period of benefit that we have determined to be three years. Under the previous guidance, we expensed commissions in the period they were earned by our sales representatives. As of June 30, 2018, the current and noncurrent balance of capitalized commissions costs recorded in the lines “Other current assets” and “Other assets” in the accompanying Condensed Consolidated Balance Sheet was $4.7 million and $6.6 million, respectively. During the three and six months ended June 30, 2018, we amortized commission costs totaling $1.0 million and $1.8 million, respectively. No impairment loss was recognized in relation to these costs capitalized.
Transaction Price Allocated to Remaining Performance Obligations
Our client contracts from license and subscription fees relating to our on demand software solutions typically possess a one year renewable term. As such, we disclose within Item 2 the annual client value to allow investors to evaluate future revenue potential.
Certain clients commit to purchase our solutions for terms ranging from two to seven years. We expect to recognize approximately $365.3 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 June 30, 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 75.0% 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 June 30, 2018 was immaterial.
Impact on Consolidated Financial Statements
In accordance with the new revenue standard requirements, the following tables summarize the effects of this new standard on selected unaudited line items within our Condensed Consolidated Statements of Operations and Balance Sheet:
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
As reported
 
Balances without adoption of ASU 2014-09
 
Effect of Change
on Net Income
Higher/(Lower)
 
As reported
 
Balances without adoption of ASU 2014-09
 
Effect of Change
on Net Income
Higher/(Lower)
 
(in thousands)
Revenue
 
 
 
 
 
 
 
 
 
 
 
On demand
$
206,945

 
$
207,421

 
$
(476
)
 
$
400,245

 
$
400,876

 
$
(631
)
Professional and other
9,307

 
8,676

 
631

 
17,308

 
16,095

 
1,213

Total revenue
$
216,252

 
$
216,097

 
$
155

 
$
417,553

 
$
416,971

 
$
582

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
$
54,488

 
$
56,785

 
$
2,297

 
$
104,729

 
$
108,886

 
$
4,157

 
 
 
 
 
 
 
 
 
 
 
 
Net income before income taxes
$
8,290

 
$
5,838

 
$
2,452

 
$
18,890

 
$
14,151

 
$
4,739

Income tax (benefit) expense
(189
)
 
(1,096
)
 
(907
)
 
(490
)
 
(2,243
)
 
(1,753
)
Net income
$
8,479

 
$
6,934

 
$
1,545

 
$
19,380

 
$
16,394

 
$
2,986

 
Balances at June 30, 2018 - as reported
 
Balances at June 30, 2018 without adoption of ASU 2014-09
 
Effect of Change
Higher/(Lower)
 
(in thousands)
Assets
 
 
 
 
 
Accounts receivable, less allowance for doubtful accounts
$
112,484

 
$
119,930

 
$
(7,446
)
Other current assets
15,812

 
11,085

 
4,727

Other assets
20,710

 
14,109

 
6,601

Liabilities
 
 
 
 
 
Current portion of deferred revenue
111,238

 
115,161

 
(3,923
)
Deferred revenue
5,181

 
5,181

 


The adoption of ASU 2014-09 had no net effect on the Company’s Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2018.