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Note 11 - Contract Costs | 9 Months Ended
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Sep. 30, 2018
Notes to Financial Statements |
Capitalized Contract Costs [Text Block] |
11. | Contract Costs
(a) | Deferred costs of acquisition
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the period of benefit of those costs to be longer than one year and those costs are expected to be recoverable under the term of the contract. We have identified certain sales incentive programs that meet the requirements to be capitalized, and therefore, capitalized them as contract costs in the amount of $1.4 million at September 30, 2018. Capitalized contract acquisition costs are amortized into operating expense based on the transfer of goods or services to which the assets relate which typically range 2 – 10 years. For the three months ended September 30, 2018, the Company capitalized $0.2 million and also amortized $0.2 million of contract costs, respectively. For the nine months ended September 30, 2018, the Company capitalized $0.7 million and also amortized $0.7 million of contract costs, respectively. There was no impairment loss recognized in relation to the costs capitalized during the three or nine months ending September 30, 2018. The breakdown of the movement in the contract costs balance for the three and nine months ending September 30, 2018 is as follows (Dollar amounts in thousands of U.S. dollars):
|  | Three months ended September 30, 2018 |  |  | Nine months ended September 30, 2018 (1) |
Balance, beginning of period |  | $ | 1,354 |  |  | $ | 1,404 |
Deferral of costs |  |  | 245 |  |  |  | 684 |
Recognized costs |  |  | (216 | ) |  |  | (705 | )
Balance, end of period |  | $ | 1,383 |  |  | $ | 1,383 |
( 1 ) The beginning balance consists entirely of a cumulative adjustment recorded on January 1, 2018 as a result of the modified retrospective adoption of ASU 2014 - 09. See note 3 – Recent accounting pronouncements for more information. When the amortization period for costs incurred to obtain a contract with a customer is less than one year, we have elected to apply a practical expedient to expense the costs as incurred. These costs include our internal sales compensation program and certain partner sales incentive programs.
(b) | Deferred costs of fulfillment
Deferred costs to fulfill contracts generally consist of domain registration costs which have been paid to a domain registry, and are capitalized as Prepaid domain name registry and ancillary services fees. These costs are deferred and amortized over the life of the domain which generally ranges from one to ten years. For the three months ended September 30, 2018, the Company capitalized $39.5 million and also amortized $43.7 million of contract costs, respectively. For the nine months ended September 30, 2018, the Company capitalized $126.6 million and also amortized $142.4 million of contract costs, respectively. There was no impairment loss recognized in relation to the costs capitalized during the three or nine months ending September 30, 2018. Amortization expense is primarily included in cost of revenue. The breakdown of the movement in the prepaid domain name registry and ancillary services fees balance for the three and nine months ended September 30, 2018 is as follows (Dollar amounts in thousands of U.S. dollars).
|  | Three months ended September 30, 2018 |  |  | Nine months ended September 30, 2018 |
Balance, beginning of period |  | $ | 115,456 |  |  | $ | 127,003 |
Deferral of costs |  |  | 39,453 |  |  |  | 126,613 |
Recognized costs 1 |  |  | (43,683 | ) |  |  | (142,390 | )
Balance, end of period |  | $ | 111,226 |  |  | $ | 111,226 |
1 As a result of the bulk transfers of 2.65 million domain names to Namecheap on January 5, 2018 and 0.24 million domain names to Namecheap on September 25, 2018, recognized revenue for the three and nine months ended September 30, 2018 includes $1.7 million and $16.2 million, respectively, related to previously deferred revenue, a portion of which would have otherwise been recognized after September 30, 2018.

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