Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

Summary of Significant Accounting Policies

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in Preparation of Financial Statements. The preparation of our Financial Statements requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our Financial Statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Revenue. The majority of our future revenue is related to our revenue management solution customer contracts that include variable consideration dependent upon a series of monthly volumes and/or daily usage of services and have contractual terms ending from 2023 through 2036. Our customer contracts may include guaranteed minimums and fixed monthly or annual fees. As of September 30, 2023, our aggregate amount of the transaction price allocated to the remaining performance obligations is $1.5 billion, which is made up of fixed fee consideration and guaranteed minimums expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied). We expect to recognize over 65% of this amount by the end of 2025, with the remaining amount recognized by the end of 2036. We have excluded variable consideration expected to be recognized in the future related to performance obligations that are unsatisfied from this amount.

The nature, amount, timing, and uncertainty of our revenue and how revenue and cash flows are affected by economic factors is most appropriately depicted by revenue type, geographic region, and customer vertical.

Revenue by type for the quarters and nine months ended September 30, 2023 and 2022 were as follows (in thousands):


	Quarter Ended				Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
SaaS and related solutions	$	250,777	$	238,614	$	764,253	$	704,303
Software and services		23,578		23,123		73,235		61,627
Maintenance		12,513		11,571		34,446		33,946
Total revenue	$	286,868	$	273,308	$	871,934	$	799,876

We use the location of the customer as the basis of attributing revenue to geographic regions. Revenue by geographic region for the quarters and nine months ended September 30, 2023 and 2022, as a percentage of our total revenue, were as follows:


	Quarter Ended						Nine Months Ended
	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
Americas (principally the U.S.)		86	%		86	%		86	%		85	%
Europe, Middle East, and Africa		9	%		10	%		10	%		11	%
Asia Pacific		5	%		4	%		4	%		4	%
Total revenue		100	%		100	%		100	%		100	%

We generate our revenue primarily from the global communications markets; however, we serve an expanding group of customers in other industry markets including retail, healthcare, financial services, insurance, and government entities. Revenue by customer vertical for the quarters and nine months ended September 30, 2023 and 2022, as a percentage of our total revenue, were as follows:


	Quarter Ended						Nine Months Ended
	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
Broadband/Cable/Satellite		53	%		55	%		53	%		55	%
Telecommunications		20	%		20	%		20	%		19	%
Other		27	%		25	%		27	%		26	%
Total revenue		100	%		100	%		100	%		100	%

Deferred revenue as of December 31, 2022 and 2021, recognized during the quarters ended September 30, 2023 and 2022 was $7.8 million and $7.6 million, respectively, and during the nine months ended September 30, 2023 and 2022 was $39.3 million and $47.9 million, respectively.

Cash and Cash Equivalents. We consider all highly liquid investments with original maturities of three months or less at the date of the purchase to be cash equivalents. As of September 30, 2023 and December 31, 2022, our cash equivalents consist primarily of institutional money market funds, commercial paper, and time deposits held at major banks. For the cash and cash equivalents denominated in foreign currencies and/or located outside the U.S., we do not anticipate any material amounts being unavailable for use in running our business, but may face limitations on moving cash out of certain foreign jurisdictions due to currency controls and potential negative economic consequences.

Restricted Cash. Restricted cash includes cash that is legally or contractually restricted, as well as our settlement and merchant reserve assets (discussed below). The nature of the restrictions on our settlement and merchant reserve assets consists of contractual restrictions with the merchants and restrictions arising from our policy and intention. It has historically been our policy to segregate settlement and merchant reserve assets from our operating cash balances and our intention is to continue to do so. As of September 30, 2023 and December 31, 2022, we had $1.2 million and $1.0 million, respectively, of restricted cash that serves to collateralize bank guarantees and outstanding letters of credit included in cash and cash equivalents in our unaudited Condensed Consolidated Balance Sheets (“Balance Sheets” or “Balance Sheet”).

Short-term Investments. Our short-term investments as of September 30, 2023 and December 31, 2022 were zero and $0.1 million, respectively. Primarily all short-term investments held by us have contractual maturities of less than two years from the time of acquisition. Our short-term investments as of December 31, 2022 consisted of fixed income securities. Proceeds from the sale/maturity of short-term investments for the nine months ended September 30, 2023 and 2022 were $0.1 million and $27.4 million, respectively.

Settlement and Merchant Reserve Assets and Liabilities. Settlement assets and settlement liabilities represent cash collected on behalf of merchants via payment processing services which is held for an established holding period until settlement with the customer. The holding period is generally one to four business days depending on the payment model and contractual terms with the customer. During the holding period, cash is subject to restriction and segregation based on the nature of our custodial relationship with the merchants. Should we fail to remit these funds to our merchants, the merchant's sole recourse for payment would be against us. These rights and obligations are set forth in the contracts between us and the merchants. Settlement assets are held with various major financial institutions and a corresponding liability is recorded for the amounts owed to the customer. At any given time, there may be differences between the cash held and the corresponding liability due to the timing of operating-related cash transfers.

Merchant reserve assets/liabilities represent deposits collected from merchants to mitigate our risk of loss due to nonperformance of settlement obligations initiated by those merchants using our payment processing services, or non-payment by customers for services rendered by us. We perform a credit risk evaluation on each customer based on multiple criteria, which provide the basis for the deposit amount required for each merchant. For the duration of our relationship with each merchant, we hold their reserve deposits with major financial institutions. We hold these funds in separate accounts and are fully offset by corresponding liabilities.

The following table summarizes our settlement and merchant reserve assets and liabilities as of the indicated periods (in thousands):


	September 30, 2023				December 31, 2022
	Assets		Liabilities		Assets		Liabilities
Settlement assets/liabilities	$	178,367	$	176,633	$	219,368	$	218,525
Merchant reserve assets/liabilities		15,004		15,004		19,285		19,285
Total	$	193,371	$	191,637	$	238,653	$	237,810

Financial Instruments. Our financial instruments as of September 30, 2023 and December 31, 2022 include cash and cash equivalents, short-term investments, settlement and merchant reserve assets and liabilities, accounts receivable, accounts payable, and debt. Due to their short maturities, the carrying amounts of cash equivalents, settlement and merchant reserve assets and liabilities, accounts receivable, and accounts payable approximate their fair value.

Our short-term investments and certain of our cash equivalents are considered “available-for-sale” and are reported at fair value in our Balance Sheets, with unrealized gains and losses, net of the related income tax effect, excluded from earnings and reported in a separate component of stockholders’ equity. Realized and unrealized gains and losses were not material in any period presented.

The following table represents the fair value hierarchy based upon three levels of inputs, of which Levels 1 and 2 are considered observable and Level 3 is unobservable, for our financial assets measured at fair value (in thousands):


	September 30, 2023						December 31, 2022
	Level 1		Level 2		Total		Level 1		Level 2		Total
Cash equivalents:
Money market funds	$	5,457	$	-	$	5,457	$	5,318	$	-	$	5,318
Short-term investments:
Asset-backed securities		-		-		-		-		71		71
Total	$	5,457	$	-	$	5,457	$	5,318	$	71	$	5,389

Valuation inputs used to measure the fair values of our money market funds were derived from quoted market prices. The fair values of all other financial instruments are based upon pricing provided by third-party pricing services. These prices were derived from observable market inputs.

We have chosen not to record our debt at fair value, with changes recognized in earnings each reporting period. The following table indicates the carrying value and estimated fair value of our debt as of the indicated periods (in thousands):


	September 30, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
2023 Convertible Notes (par value)	$	425,000	$	414,694	$	-	$	-
2021 Credit Agreement (carrying value including current maturities):
Term Loan		135,000		135,000		140,625		140,625
Revolver		15,000		15,000		275,000		275,000

The fair value of our convertible notes was estimated based upon quoted market prices or recent sales activity, while the fair value of our credit agreement was estimated using a discounted cash flow methodology, both of which are considered Level 2 inputs.