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Revenue
 6 Months Ended
Jun. 30, 2021
Revenue  
2. Revenue

2. 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, service, or software solution 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 Services 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, interest generated from equipment financing revenue, and support for premise based PBX phone systems. 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.

   

Software Solutions Segment

 

The Software Solutions segment derives revenues from three primary sources: software licenses, software maintenance support and professional services. Software and services may be sold separately or in bundled packages. Generally, contracts with customers contain multiple performance obligations, consisting of software and services. 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 software licenses and professional 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.

Software Licenses - The Company's software licenses typically provide a perpetual right to use the Company's software. The Company also sells term-based software licenses that expire and Software-as-a-Service ("SaaS") based software which are referred to as subscription arrangements. The Company does not customize its software nor are installation services required, as the customer has a right to utilize internal resources or a third-party service company. The software is delivered before related services are provided and are functional without professional services or customer support. The Company has concluded that its software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own. The software license revenue could be recognized upon transfer of control or when the software is made available for download, as this is the point that the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property. However, historical experience shows that customers regularly renegotiate the number of licenses during the installation process. Therefore, the Company recognizes revenue from software licenses when the setup is complete. The Company does not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the subscription period.

 

 

·

SNAPsolution® - a comprehensive, IP-based platform that provides a broad suite of UC services including hosted Private Branch Exchange (PBX), auto-attendant, call center, conferencing, and mobility. The platform includes a broad range of feature-sets, custom-built to provide unprecedented levels of flexibility, making the solution competitive with the market’s leading players. SNAPsolution includes a full suite of Voice over Internet Protocol (VoIP)/UC features with one low cost universal license, as opposed to pricing each feature individually. The Company licenses its platform based on concurrent sessions, not per seat/per feature. This allows service providers to oversubscribe their networks, driving down the cost per seat as volume increases. As the service provider increases their customer base, they only have to ensure they have sufficient concurrent call licenses to support users across the network. The Company recognizes one-time upfront software license revenue when the software setup is complete.

 

·

SNAPaccel – a Software-as-a-Service ("SaaS") based software license referred to as subscription arrangements. The Company recognizes revenue as subscriptions are provided in service revenue on a monthly basis.

   

Subscription Maintenance and Support - Subscription maintenance and support revenue includes revenue from maintenance service contracts, customer support, and other supportive services. The Company offers warranties on its products. The warranty period for the Company’s licensed software is generally 90 days. Certain of the Company's warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended. Based on the guidance in ASC 606, assurance-type warranties do not represent separate performance obligations. The Company also sells separately-priced maintenance service contracts, which qualify as service-type warranties and represent separate performance obligations. The Company does not typically allow and has no history of accepting material product returns. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. Subscription and maintenance support revenue is recognized ratably over the term of the customer support agreement, which is typically one year.

 

Professional Services and Other - The Company's professional services include consulting, technical support, resident engineer services, design services and installation services. Revenue from professional services and other is recognized when the performance obligation is complete and the customer has accepted the performance obligation.

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, 2021

 

Cloud

 

 

Software

 

 

Total

 

(In thousands)

 

Telecommunications

 

 

Solutions

 

 

Reportable

 

 

 

Segment

 

 

Segment

 

 

Segments

 

Major products/services lines

 

 

 

 

 

 

 

 

 

Desktop devices

 

$440

 

 

$-

 

 

$440

 

Equipment financing revenue

 

 

67

 

 

 

-

 

 

 

67

 

Telecommunications services

 

 

3,685

 

 

 

-

 

 

 

3,685

 

Fees, commissions, and other, recognized over time

 

 

428

 

 

 

-

 

 

 

428

 

One time fees, commissions and other

 

 

147

 

 

 

-

 

 

 

147

 

Software licenses

 

 

-

 

 

 

737

 

 

 

737

 

Subscription maintenance and support

 

 

-

 

 

 

238

 

 

 

238

 

Professional services and other

 

 

-

 

 

 

37

 

 

 

37

 

 

 

$4,767

 

 

$1,012

 

 

$5,779

 

Timing of revenue recognition

 

 

 

 

 

 

 

 

 

 

 

 

Products, services, and fees recognized at a point in time

 

$536

 

 

$716

 

 

$1,252

 

Products, services, and fees transferred over time

 

 

4,231

 

 

 

296

 

 

 

4,527

 

 

 

$4,767

 

 

$1,012

 

 

$5,779

 

 

Three Months Ended June 30, 2020

 

Cloud

 

 

Software

 

 

Total

 

(In thousands)

 

Telecommunications

 

 

Solutions

 

 

Reportable

 

 

 

Segment

 

 

Segment

 

 

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

 

 

386

 

 

 

-

 

 

 

386

 

One time fees, commissions and other

 

 

54

 

 

 

-

 

 

 

54

 

 

 

$4,054

 

 

$-

 

 

$4,054

 

Timing of revenue recognition

 

 

 

 

 

 

 

 

 

 

 

 

Products and fees recognized at a point in time

 

$503

 

 

$-

 

 

$503

 

Services and fees transferred over time

 

 

3,551

 

 

 

-

 

 

 

3,551

 

 

 

$4,054

 

 

$-

 

 

$4,054

 

Six Months Ended June 30, 2021

 

Cloud

 

 

Software

 

 

Total

 

(In thousands)

 

Telecommunications

 

 

Solutions

 

 

Reportable

 

 

 

Segment

 

 

Segment

 

 

Segments

 

Major products/services lines

 

 

 

 

 

 

 

 

 

Desktop devices

 

$808

 

 

$-

 

 

$808

 

Equipment financing revenue

 

 

135

 

 

 

-

 

 

 

135

 

Telecommunications services

 

 

7,277

 

 

 

-

 

 

 

7,277

 

Fees, commissions, and other, recognized over time

 

 

833

 

 

 

-

 

 

 

833

 

One time fees, commissions and other

 

 

221

 

 

 

-

 

 

 

221

 

Software licenses

 

 

-

 

 

 

737

 

 

 

737

 

Subscription maintenance and support

 

 

-

 

 

 

238

 

 

 

238

 

Professional services and other

 

 

-

 

 

 

37

 

 

 

37

 

 

 

$9,274

 

 

$1,012

 

 

$10,286

 

Timing of revenue recognition

 

 

 

 

 

 

 

 

 

 

 

 

Products and fees recognized at a point in time

 

$877

 

 

$716

 

 

$1,593

 

Services and fees transferred over time

 

 

8,397

 

 

 

296

 

 

 

8,693

 

 

 

$9,274

 

 

$1,012

 

 

$10,286

 

 

Six Months Ended June 30, 2020

 

Cloud

 

 

Software

 

 

Total

 

(In thousands)

 

Telecommunications

 

 

Solutions

 

 

Reportable

 

 

 

Segment

 

 

Segment

 

 

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

 

 

775

 

 

 

-

 

 

 

775

 

One time fees, commissions and other

 

 

83

 

 

 

-

 

 

 

83

 

 

 

$7,921

 

 

$-

 

 

$7,921

 

Timing of revenue recognition

 

 

 

 

 

 

 

 

 

 

 

 

Products and fees recognized at a point in time

 

$911

 

 

$-

 

 

$911

 

Services and fees transferred over time

 

 

7,010

 

 

 

-

 

 

 

7,010

 

 

 

$7,921

 

 

$-

 

 

$7,921

 

 

Contract balances

 

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

 

 

 

June 30,

 

 

December 31,

 

(In thousands)

 

2021

 

 

2020

 

Receivables, which are included in trade receivables, net of allowance for doubtful accounts

 

$1,451

 

 

$538

 

Contract assets

 

 

199

 

 

 

159

 

Contract liabilities

 

 

3,209

 

 

 

1,228

 

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, 2021

 

 

December 31, 2020

 

 

 

Contract

Assets

 

 

Contract

Liabilities

 

 

Contract

Assets

 

 

Contract

Liabilities

 

Revenue recognized that was included in the contract liability balance at the beginning of the period

 

$-

 

 

 (964

) 

 

$-

 

 

$(976)
Increase due to cash received, excluding amounts recognized as revenue during the period

 

 

-

 

 

 2,945

 

 

 

-

 

 

 

990

 

Transferred to receivables from contract assets recognized at the beginning of the period

 

 

(33)

 

 

-

 

 

 

(21)

 

 

-

 

Increase due to additional unamortized discounts

 

 

73

 

 

 

-

 

 

 

158

 

 

 

-

 

 

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 from the cloud telecommunications services segment (in thousands):

 

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

2026

 

 

Total

 

Desktop devices

 

$304

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

$304

 

Telecommunications service

 

$6,018

 

 

 

8,905

 

 

 

6,234

 

 

 

4,020

 

 

 

1,571

 

 

 

176

 

 

$26,924

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above excludes backlog from the software solutions segment acquired in the NetSapiens acquisition, as additional time is required to compile the data.