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2. Revenue
 6 Months Ended
Jun. 30, 2020
Revenues [Abstract]  
Revenue

Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. The following is a description of principal activities – separated by reportable segments – from which the Company generates its revenue. For more detailed information about reportable segments, see Note 15.

 

Cloud Telecommunications Segment

 

Products and services may be sold separately or in bundled packages. The typical length of a contract for service is thirty-six to sixty months. Customers are billed for these services on a monthly basis. For bundled packages, the Company accounts for individual products and services separately if they are distinct – i.e. if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate products and services in a bundle based on their relative stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the desktop devices and telecommunication services. For items that are not sold separately (e.g. additional features) the Company estimates stand-alone selling prices using the adjusted market assessment approach. When we provide a free trial period, we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services.

 

Desktop Devices – Revenue generated from the sale of telecommunications equipment (desktop devices) is recognized when the customer takes possession of the devices and the cloud telecommunications services begin. The Company typically bills and collects the fees for the equipment upon entering into a contract with a customer. Cash receipts are recorded as a contract liability until implementation is complete and the services begin.

 

Equipment Financing Revenue – Fees generated from renting our cloud telecommunication equipment (IP or cloud telephone desktop devices) through leasing contracts are recognized as revenue based on whether the lease qualifies as an operating lease or sales-type lease. The two primary accounting provisions which we use to classify transactions as sales-type or operating leases are: 1) lease term to determine if it is equal to or greater than 75% of the economic life of the equipment and 2) the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the equipment at the inception of the lease. The economic life of most of our products is estimated to be three years, since this represents the most frequent contractual lease term for our products, and there is no residual value for used equipment. Residual values, if any, are established at the lease inception using estimates of fair value at the end of the lease term. The vast majority of our leases that qualify as sales-type leases are non-cancelable and include cancellation penalties approximately equal to the full value of the lease receivables. Leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases. Revenue from sales-type leases is recognized upon installation and the interest portion is deferred and recognized as earned. Revenue from operating leases in recognized ratably over the applicable service period.

 

Cloud Telecommunications Services – Cloud telecommunication services include voice, data, collaboration software, broadband Internet access, and interest generated from equipment financing revenue. The Company recognizes revenue as services are provided in service revenue. Fees generated from reselling broadband Internet access are recognized as revenue net of the costs charged by the third-party service providers. Cloud telecommunications services are billed and paid on a monthly basis. Our telecommunications services contracts typically have a term of thirty-six to sixty months.

 

Fees, Commissions, and Other, Recognized over Time – Includes contracted and non-contracted items such as:

 

● Contracted activation and flash fees – The Company generally allocates a portion of the activation fees to the desktop devices, which is recognized at the time of the installation or customer acceptance, and a portion to the service, which is recognized over the contract term using the straight-line method.

 

● Non-contracted carrier cost recovery fee – This fee recovers the various costs and expenses that the Company incurs in connection with complying with legal, regulatory, and other requirements, including without limitation federal, state, and local reporting and filing requirements. This fee is assessed as a set percentage of our monthly billing and is recognized monthly.

 

● Non-contracted administrative fees – Administrative fees are recognized as revenue on a monthly basis.

 

One-Time Fees, Commissions, and Other – Includes contracted and non-contracted items such as:

 

● Contracted professional service revenue – Professional service revenue includes professional installation services, custom integration, and other professional services. The Company typically bills and collects professional service revenue upon entering into a contract with a customer. Professional service revenue is recognized as revenue when the performance obligations are completed.

 

● Non-contracted cancellation fees – These cancellation fees relate to remaining contractual term buyout payments in connection with early cancellation and are billed and recognized as revenue upon receipt.

 

● Other non-contracted fees – These fees include disconnect fees, shipping fees, restocking fees, and porting fees. Other non-contracted fees are recognized as revenue upon receipt of payment.

 

Web Services Segment

 

Website Hosting Service – Fees generated from hosting customer websites are recognized as revenue as the services are provided in service revenue. Website hosting services are billed and collected on a monthly basis.

 

Professional Website Management Service and Other – Fees generated from reselling professional website management services are recognized as revenue net of the costs charged by the third-party service providers. Professional website management services are billed and paid on a monthly basis.

 

Disaggregation of Revenue

 

In the following table, revenue is disaggregated by primary major product line, and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the reportable segments.

 

Three Months Ended June 30, 2020                   
(In thousands)                   
   

Cloud Telecommunications

Segment

    

Web Services

Segment

    

Total Reportable

Segments

  
Major products/services lines                  
Desktop devices   $ 449     $ -     $ 449  
Equipment financing revenue     51       -       51  
Telecommunications services     3,114       -       3,114  
Fees, commissions, and other, recognized over time     250       -       250  
One time fees, commissions and other     54       -       54  
Website hosting services     -       122       122  
Website management services and other     -       14       14  
    $ 3,918     $ 136     $ 4,054  
Timing of revenue recognition                        
Products and fees recognized at a point in time   $ 503     $ -     $ 503  
Services and fees transferred over time     3,415       136       3,551  
    $ 3,918     $ 136     $ 4,054  

 

Three Months Ended June 30, 2019                  
(In thousands)                   
   

Cloud Telecommunications

Segment

    

Web Services

Segment

    

Total Reportable

Segments

  
Major products/services lines                  
Desktop devices   $ 467     $ -     $ 467  
Equipment financing revenue     27       -       27  
Telecommunications services     2,629       -       2,629  
Fees, commissions, and other, recognized over time     208       -       208  
One time fees, commissions and other     118       -       118  
Website hosting services     -       152       152  
Website management services and other     -       13       13  
    $ 3,449     $ 165     $ 3,614  
Timing of revenue recognition                        
Products and fees recognized at a point in time   $ 585     $ -     $ 585  
Services and fees transferred over time     2,864       165       3,029  
    $ 3,449     $ 165     $ 3,614  

 

Six Months Ended June 30, 2020                   
(In thousands)                   
   

Cloud Telecommunications

Segment

    

Web Services

Segment

    

Total Reportable

Segments

  
Major products/services lines                  
Desktop devices   $ 828     $ -     $ 828  
Equipment financing revenue     96       -       96  
Telecommunications services     6,139       -       6,139  
Fees, commissions, and other, recognized over time     483       -       483  
One time fees, commissions and other     83       -       83  
Website hosting services     -       255       255  
Website management services and other     -       37       37  
    $ 7,629     $ 292     $ 7,921  
Timing of revenue recognition                        
Products and fees recognized at a point in time   $ 911     $ -     $ 911  
Services and fees transferred over time     6,718       292       7,010  
    $ 7,629     $ 292     $ 7,921  

 

Six Months Ended June 30, 2019                  
(In thousands)                   
   

Cloud Telecommunications

Segment

    

Web Services

Segment

    

Total Reportable

Segments

  
Major products/services lines                  
Desktop devices   $ 951     $ -     $ 951  
Equipment financing revenue     49       -       49  
Telecommunications services     5,136       -       5,136  
Fees, commissions, and other, recognized over time     399       -       399  
One time fees, commissions and other     228       -       228  
Website hosting services     -       298       298  
Website management services and other     -       45       45  
    $ 6,763     $ 343     $ 7,106  
Timing of revenue recognition                        
Products and fees recognized at a point in time   $ 1,179     $ -     $ 1,179  
Services and fees transferred over time     5,584       343       5,927  
    $ 6,763     $ 343     $ 7,106  

 

Contract balances

 

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.

 

(In thousands)  

June 30,

2020

    

December 31,

2019

  
Receivables, which are included in trade receivables, net of allowance            
for doubtful accounts   $ 569     $ 386  
Contract assets     46       22  
Contract liabilities     1,235       1,214  

 

Significant changes in the contract assets and the contract liabilities balances during the period are as follows:

 

    Six Months Ended     For the Year Ended  
(In thousands)   June 30, 2020       December 31, 2019  
    Contract Assets     Contract Liabilities     Contract Assets     Contract Liabilities  
Revenue recognized that was included in the contract liability balance at the beginning of the period   $ -     $ (852 )   $ -     $ (882 )
Increase due to cash received, excluding amounts recognized as revenue during the period     -       831       -       1,033  
Transferred to receivables from contract assets recognized at the beginning of the period     (7 )     -       (13 )     -  
Increase due to additional unamortized discounts     31       -       23       -  

 

Transaction price allocated to the remaining performance obligations

 

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period (in thousands):

 

    2020     2021     2022     2023     2024     2025     Total  
Desktop devices   $ 257       -       -       -       -       -     $ 257  
Telecommunications service   $ 5,765       8,782       6,322       4,086       1,944       193     $ 27,092  

 

All consideration from contracts with customers is included in the amounts presented above