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Revenue Recognition
 12 Months Ended
Jul. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Recognition

Note 2—Revenue Recognition

 

Modified Retrospective Method of Adoption and Cumulative Effect Adjustment

 

The Company adopted ASC 606 on August 1, 2018, using the modified retrospective method. As this method requires that the cumulative effect of initially applying ASC 606 be recognized at the date of adoption, at August 1, 2018, the Company recorded an aggregate $9.1 million reduction to “Accumulated deficit” for the cumulative effect of the adoption. The cumulative effect adjustment included changes to the accounting for breakage and the costs to obtain and fulfill contracts with customers.

 

The Company estimates its expected breakage revenue by revenue stream recorded each month, based on inputs and assumptions about usage of the deferred revenue balances. The Company’s deferred revenue balances are primarily from BOSS Revolution Calling, traditional calling cards, and Mobile Top-Up. The Company used its historical deferred revenue usage data by revenue stream to calculate the percentage of deferred revenue by month that will become breakage. The historical data indicated that customers utilize a very high percentage of minutes purchased in the first three months. The Company reviews its estimates quarterly based on updated data and adjusts the monthly estimates accordingly.

 

Contracts with Customers

 

The Company earns revenue from contracts with customers, primarily through the provision of retail telecommunications and payment offerings as well as wholesale international long-distance traffic termination. The Telecom & Payment Services segment is comprised of Growth and Core verticals. Growth includes National Retail Solutions’ (“NRS”) point of sale network offerings, and BOSS Revolution Money Transfer, an international money remittance service for customers in the United States. Core includes BOSS Revolution Calling, an international long-distance calling service marketed primarily to immigrant communities in the United States, Mobile Top-Up, which enables customers to transfer airtime and bundles of airtime, messaging, and data to mobile accounts internationally and domestically, and Carrier Services, which provides international voice and text termination as well as outsourced traffic management solutions to telecoms globally. Core also includes smaller communications and payment offerings, many in harvest mode. The net2phone segment is comprised of net2phone-Unified Communications as a Service (“UCaaS”), a cloud communications service for businesses in North and South America and certain other international markets, and net2phone-Platform Services, which provides telephony services to cable operators and other offerings that leverage a common technology platform.

 

Telecom & Payment Services’ growth initiatives and net2phone-UCaaS are technology-driven, synergistic businesses that leverage the core assets, and revenue in some cases is recognized over time. The Company’s core operations are mostly minute-based, paid-voice communications services, and revenue is primarily recognized at a point in time. The Company’s most significant revenue streams are from BOSS Revolution Calling, Mobile Top-Up, and Carrier Services. BOSS Revolution Calling and Mobile Top-Up are sold direct-to-consumers and through distributors and retailers.

 

BOSS Revolution Calling direct-to-consumers

 

BOSS Revolution Calling direct-to-consumers is offered on a pay-as-you-go basis or in unlimited plans. The customer prepays for service in both cases, which results in a contract liability (deferred revenue). The contract term for pay-as-you-go plans is minute-to-minute that includes separate performance obligations for the series of material rights to renew the contract. The performance obligation is satisfied immediately after it arises, and the amount of consideration is known when the obligation is satisfied. Since the Company’s satisfaction of its performance obligation and the customer’s use of the service occur simultaneously, the Company recognizes revenue at the point in time when minutes are utilized, since the customer obtained control and the Company has a present right to payment. For unlimited plans, the Company has a stand ready obligation to provide service over time for an agreed upon term. Unlimited plans include fixed consideration over the term. Plan fees for unlimited plans are generally refundable up to three days after payment if there was no usage. Since the Company’s satisfaction of its performance obligation and the customer’s use of the service occur over the term, the Company recognizes revenue over a period of time as the service is rendered. The Company uses an output method as time elapses because it reflects the pattern by which the Company satisfies its performance obligation through the transfer of service to the customer. The fixed upfront consideration is recognized evenly over the service period, which is generally 24 hours, 7 days, or one month.

 

BOSS Revolution Calling sold through distributors and retailers

 

BOSS Revolution Calling sold through distributors and retailers is the same service as BOSS Revolution Calling direct-to-consumers. The Company sells capacity to international calling minutes to retailers, or to distributors who resell to retailers. The retailer or distributor is the Company’s customer in these transactions. The Company’s sales price to retailers and distributors is less than the end user rate for BOSS Revolution Calling minutes. The customer or the Company may terminate their agreement at any time upon thirty days written notice without penalty. Retailers may sell BOSS Revolution Calling on a pay-as-you-go basis or in unlimited plans. As described above, for pay-as-you-go, the Company recognizes revenue at the point in time when minutes are utilized, and for unlimited plans, the Company recognizes revenue over a period of time as the service is rendered. Retailers and distributors also receive renewal commissions when certain end users subsequently purchase minutes directly from the Company. Renewal commission payments are accounted for as a reduction of the transaction price over time as the end user uses the service.

 

Mobile Top-Up

 

Mobile Top-Up is sold direct-to-consumers and through distributors and retailers in the same manner as BOSS Revolution Calling. The Company does not terminate the minutes in its Mobile Top-Up transactions. The Company’s performance obligation is to recharge (top-up) the airtime balance of a mobile account on behalf of the Company’s customer. The Company has contracts with various mobile operators or aggregators to provide the Mobile Top-Up service. The Company determined that it is the principal in primarily all its Mobile Top-Up transactions as the Company controls the service to top-up a mobile account on behalf of the Company’s customer. However, for a portion of its domestic Mobile Top-Up business where the Company has no customer service responsibilities, no inventory risk, and does not establish the price, the Company determined that, as the Company is not considered to control the arrangement, it acts as an agent of the mobile operators. The Company records gross revenues based on the amount billed to the customer when it is the principal in the arrangement and records revenue net of the associated costs incurred when it acts as an agent in the arrangement. The performance obligation is satisfied, and revenue is recognized when the recharge of the mobile account occurs. Accordingly, transfer of control happens at the point in time that the airtime is recharged, which is when the Company has a right to payment and the customer has accepted the service.

 

Carrier Services

 

Carrier Services are offered to both postpaid and prepaid customers. Postpaid customers are billed in arrears and typically consist of credit-worthy companies such as Tier 1 carriers and mobile network operators. Prepaid customers are typically smaller communications companies and independent call aggregators. There is no performance obligation until the transport and termination of international long-distance calls commences. The initial contract durations range from six months to one year with successive extensions. During the initial term, the contract can only be terminated in certain instances (such as bankruptcy of either party, damage to the other party’s network, fraud, or breach of contract). However, no penalties are applied if the agreement is terminated in the initial term. After the initial term has expired, either party may terminate the agreement with notice of 30 days to 60 days depending on the agreement. The term of the contract is essentially minute-to-minute as there is no penalty for an early termination and no obligation to send traffic.

 

Each iteration is a separate optional purchase that is occurring over the contract duration (that is, minute-by-minute). The satisfaction of the performance obligation is occurring at a point in time (as the minutes are transferred) because the provision of the service and the satisfaction of the performance obligation are essentially occurring simultaneously. Revenue is recognized at the point in time upon delivery of the service.

 

The Company has not generally entered into contracts that have retroactive pricing features. Additionally, as the performance obligations are considered minute-by-minute obligations in the original contract, any modification of the original contract that leads to a conclusion that there is a new contract would not result in any adjustment related to the original contract’s consideration.

 

The Company provides discounts to its larger customers based on the expectation of a significant volume of minutes that are consistent with that class of customer in the wholesale carrier market. The discounts do not provide a material right to the customer because the customer receives the same pricing for all usage under the contract.

 

Carrier Services’ contracts may include tiered pricing based on minute volumes. The Company determined that its retroactive tiered pricing should be accounted for as variable consideration because the final transaction price is unknown until the customer completes or fails to complete the specified threshold. Currently, contracts with retroactive tiered pricing are not material. The Company estimates the amount of variable consideration to include in the transaction price only to the extent that it is probable that a subsequent change in the estimate would not result in a significant revenue reversal.

 

The Company enters into Notification of Reciprocal Transmission (“NORT”) transactions, in which the Company commits to purchase a specific number of wholesale carrier minutes to other specific destinations at specified rates, and the counterparty commits to purchase from the Company a specific number of minutes to specific destinations at specified rates. The number of minutes purchased and sold is not necessarily the same. The rates in these reciprocal transactions are generally not at prevailing market rates, and the amounts paid to the counterparty in excess of market rates are reflected as a reduction in revenue received from the customer. In addition, the Company enters into transactions in which it swaps minutes with another carrier. The Company recognized revenue and the related direct cost of revenue for these reciprocal and swap transactions based on the fair value of the minutes.

 

Carrier Services’ NORT contracts include the promise of minimum guaranteed amounts of traffic. The performance obligation represents a stand ready obligation to provide the specified number of minutes over the contractual term. The initial terms of NORT contracts generally range from one month to six months. Since the Company’s satisfaction of its performance obligation of routing calls to their destination includes a minimum guaranteed amount of traffic, the Company recognizes revenue over a period of time as the service is rendered. The customer simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs. The Company uses an output method as the usage of minutes occur because it reflects the pattern by which the Company satisfies its performance obligation through the transfer of service to the customer.

 

Disaggregated Revenues

 

The following table shows the Company’s revenues disaggregated by business segment and service offered to customers:

 

Year ended July 31
(in thousands)		  2020   2019 
Growth:        
BOSS Revolution Money Transfer  $47,950   $23,051 
National Retail Solutions   11,980    6,199 
Other   112    183 
Core:          
Mobile Top-Up   334,305    271,995 
BOSS Revolution Calling   463,917    490,649 
Carrier Services   393,769    514,202 
Other   42,914    55,629 
Total Telecom & Payment Services   1,294,947    1,361,908 
net2phone-UCaaS   31,870    24,482 
net2phone-Platform Services   18,952    22,782 
Total net2phone   50,822    47,264 
TOTAL  $1,345,769   $1,409,172 

 

The following tables show the Company’s revenues disaggregated by geographic region, which is determined based on selling location:

 

(in thousands)  Telecom
& Payment
Services		   net2phone   Total 
Year ended July 31, 2020               
United States  $888,728   $34,136   $922,864 
Outside the United States:               
United Kingdom   134,339    12    134,351 
Netherlands   210,743    
—
    210,743 
Other   61,137    16,674    77,811 
Total outside the United States   406,219    16,686    422,905 
TOTAL  $1,294,947   $50,822   $1,345,769 
                
Year ended July 31, 2019               
United States  $901,997   $33,857   $935,854 
Outside the United States:               
United Kingdom   195,661    21    195,682 
Netherlands   192,284    
—
    192,284 
Other   71,966    13,386    85,352 
Total outside the United States   459,911    13,407    473,318 
TOTAL  $1,361,908   $47,264   $1,409,172 

 

Remaining Performance Obligations

 

The Company does not have any significant revenue from performance obligations satisfied or partially satisfied in previous reporting periods. The Company’s remaining performance obligations at July 31, 2020 and 2019 had an original expected duration of one year or less.

 

Accounts Receivable and Contract Balances

 

The timing of revenue recognition may differ from the time of billing to the Company’s customers. Trade accounts receivable in the Company’s consolidated balance sheets represent unconditional rights to consideration. An entity records a contract asset when revenue is recognized in advance of the entity’s right to bill and receive consideration. The Company has not identified any contract assets.

 

Contract liabilities arise when the Company receives consideration or bills its customers prior to providing the goods or services promised in the contract. The primary component of the Company’s contract liability balance is the payments received for its prepaid BOSS Revolution Calling, traditional calling cards, and Mobile Top-Up services. Contract liabilities are recognized as revenue when services are provided to the customer. The contract liability balances are presented in the Company’s consolidated balance sheets as “Deferred revenue”. The Company’s revenue recognized in fiscal 2020 and fiscal 2019 from amounts included in the contract liability balance at the beginning of the period was $32.3 million and $31.2 million, respectively.

 

Deferred Customer Contract Acquisition and Fulfillment Costs

 

The Company recognizes as an asset its incremental costs of obtaining a contract with a customer that it expects to recover. The Company charges its direct costs to fulfill contracts to expense as incurred. The Company’s incremental costs of obtaining a contract with a customer are sales commissions paid to acquire customers. For Telecom & Payment Services, the Company applies the practical expedient whereby the Company primarily charges these costs to expense when incurred because the amortization period would be one year or less for the asset that would have been recognized from deferring these costs. For net2phone-UCaaS sales, employees and third parties receive commissions on sales to end users. The Company amortizes the deferred costs over the expected customer relationship period when it is expected to exceed one year.

 

The Company’s deferred customer contract acquisition costs were as follows:

 

July 31
(in thousands)		  2020   2019 
Deferred customer contract acquisition costs included in “Other current assets”  $2,350   $1,474 
Deferred customer contract acquisition costs included in “Other assets”   2,384    1,716 
TOTAL  $4,734   $3,190 

 

In fiscal 2020 and fiscal 2019, the Company’s amortization of deferred customer contract acquisition costs was $2.4 million and $1.8 million, respectively.