Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2020

Principles of Consolidation

Principles of Consolidation.  Our Financial Statements include all of our accounts and our subsidiaries’ accounts. All material intercompany accounts and transactions have been eliminated.

Translation of Foreign Currency

Translation of Foreign Currency. Our foreign subsidiaries use the local currency of the countries in which they operate as their functional currency. Their assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenue, expenses, and cash flows are translated at the average rates of exchange prevailing during the period. Foreign currency translation adjustments are included in comprehensive income in stockholders’ equity. Foreign currency transaction gains and losses are included in the determination of net income.

Use of Estimates in Preparation of Our Financial Statements

Use of Estimates in Preparation of Our 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 at the date of our Financial Statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The more critical accounting estimates and related assumptions that may affect our financial position and results of operations are in the areas of: (i) revenue recognition; (ii) impairment assessments of long-lived assets; (iii) income taxes; and (iv) loss contingencies.

Revenue Recognition

Revenue Recognition.  We adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) as of January 1, 2018 using the cumulative effect method and recorded a cumulative adjustment increasing beginning retained earnings (net of tax) by approximately $7 million, primarily related to contracts that we were previously required to defer revenue as we did not have vendor specific objective evidence of fair value for certain undelivered elements.  

Our revenue from customer contracts is measured based on consideration specified in our contracts as discussed further below. We recognize revenue for our products and services separately if they are distinct performance obligations. A product or service, or group of products or services, is a distinct performance obligation if it is separately identifiable from other items in the context of the contract and if our customer can benefit from the product or service on their own or with other resources that are readily available to that customer. We recognize revenue when we satisfy our performance obligations by transferring control of a particular product or service, or group of products or services, to our customers, as described in more detail below. Taxes assessed on our products and services based on governmental authorities at the time of invoicing are excluded from our revenue.

Transaction Price Allocated to the Remaining Performance Obligations

As of December 31, 2020, our aggregate amount of the transaction price allocated to the remaining performance obligations is approximately $1 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 approximately 90% of this amount by the end of 2023, with the remaining amount recognized by the end of 2028. We have excluded from this amount variable consideration expected to be recognized in the future related to performance obligations that are unsatisfied. The majority of our future revenue is related to our cloud and related solution customer contracts that includes variable consideration dependent upon a series of monthly volumes and/or daily usage of services and have contractual terms ending from 2021 through 2028.  

Disaggregation of Revenue

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 2020, 2019, and 2018 was as follows (in thousands):

	2020		2019		2018
Revenue:
Cloud and related solutions	$	880,822	$	896,164	$	766,377
Software and services		63,239		52,364		58,101
Maintenance		46,472		48,282		50,581
Total revenue	$	990,533	$	996,810	$	875,059

We use the location of the customer as the basis of attributing revenue to geographic regions. Revenue by geographic region for 2020, 2019, and 2018, as a percentage of our total revenue, was as follows:

	2020			2019			2018
Americas (principally the U.S.)		86	%		87	%		85	%
Europe, Middle East and Africa (principally Europe)		10	%		9	%		10	%
Asia Pacific		4	%		4	%		5	%
Total revenue		100	%		100	%		100	%

We generate our revenue primarily from the global communications markets; however, we serve an expanding group of customers in markets including financial services, healthcare, media and entertainment companies, and government entities.  Revenue by customer vertical for 2020, 2019, and 2018, as a percentage of our total revenue, was as follows:

	2020			2019			2018
Broadband/Cable/Satellite		58	%		58	%		64	%
Telecommunications		19	%		19	%		21	%
Other		23	%		23	%		15	%
Total revenue		100	%		100	%		100	%

Billed and Unbilled Accounts Receivable

Billed and Unbilled Accounts Receivable. Billed accounts receivable represents our unconditional rights to consideration. Once invoiced, our payment terms are generally between 30-60 days.  We rarely have contracts with financing arrangements. Unbilled accounts receivable represents our rights to consideration for work completed but not billed.  Unbilled accounts receivable is transferred to billed accounts receivable when the rights become unconditional which is generally at the time of invoicing.

The following table rolls forward our unbilled accounts receivable from January 1, 2019 to December 31, 2020 (in thousands):

	Unbilled Receivables
Beginning Balance, January 1, 2019	$	37,227
Recognized during the period		252,445
Reclassified to receivables		(255,983	)
Other		(239	)
Ending Balance, December 31, 2019		33,450
Recognized during the period		248,574
Reclassified to receivables		(244,574	)
Other		335
Ending Balance, December 31, 2020	$	37,785

Deferred Revenue

Deferred Revenue.  Deferred revenue represents consideration received from customers in advance of services being performed.

The following table rolls forward our deferred revenue from January 1, 2019 to December 31, 2020 (in thousands):

	Deferred Revenue
Beginning Balance, January 1, 2019	$	(57,763	)
Revenue recognized that was included in deferred revenue at the beginning of the period		39,352
Consideration received in advance of services performed net of revenue recognized in the current period		(44,051	)
Other		(1,184	)
Ending Balance, December 31, 2019		(63,646	)
Revenue recognized that was included in deferred revenue at the beginning of the period		40,811
Consideration received in advance of services performed net of revenue recognized in the current period		(46,719	)
Other		(78	)
Ending Balance, December 31, 2020	$	(69,632	)

Postage

Postage.  We pass through to our customers the cost of postage that is incurred on behalf of those customers, and typically require an advance payment on expected postage costs. These advance payments are included in customer deposits in the accompanying Consolidated Balance Sheets (“Balance Sheets” or “Balance Sheet”) and are classified as current liabilities regardless of the contract period. We net the cost of postage against the postage reimbursements for those customers where we require advance deposits and include the net amount (which is not material) in cloud and related solutions revenue.  

Cash and Cash Equivalents

Cash and Cash Equivalents.  We consider all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. As of December 31, 2020 and 2019, our cash equivalents consist primarily of institutional money market funds, commercial paper, and time deposits held at major banks.

As of December 31, 2020 and 2019, we had $1.7 million and $2.7 million, respectively, of restricted cash that serves to collateralize guarantees and outstanding letters of credit. This restricted cash is included in cash and cash equivalents in our Balance Sheets.

Short-term Investments and Other Financial Instruments

Short-term Investments and Other Financial Instruments.  Our financial instruments as of December 31, 2020 and 2019 include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and debt. Due to their short maturities, the carrying amounts of cash equivalents, accounts receivable, and accounts payable approximate their fair value.

Our short-term investments and certain 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.

Primarily all short-term investments held by us as of December 31, 2020 and 2019 have contractual maturities of less than two years from the time of acquisition. Our short-term investments at December 31, 2020 and 2019 consisted almost entirely of fixed income securities. Proceeds from the sale/maturity of short-term investments in 2020, 2019, and 2018 were $56.5 million, $52.1 million, and $190.8 million, respectively.

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):

	December 31, 2020						December 31, 2019
	Level 1		Level 2		Total		Level 1		Level 2		Total
Cash equivalents:
Money market funds	$	33,535	$	—	$	33,535	$	4,847	$	—	$	4,847
Commercial paper		—		15,746		15,746		—		26,964		26,964
Corporate debt securities		—		1,351		1,351		—		—		—
Short-term investments:
Corporate debt securities		—		38,672		38,672		—		22,159		22,159
U.S. government agency bonds		—		4,642		4,642		—		—		—
Asset-backed securities		—		8,284		8,284		—		3,950		3,950
Total	$	33,535	$	68,695	$	102,230	$	4,847	$	53,073	$	57,920

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):

	December 31, 2020				December 31, 2019
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
2018 Credit Agreement (carrying value including current maturities)	$	126,563	$	126,563	$	136,875	$	136,875
2016 Convertible debt (par value)		230,000		244,663		230,000		262,775

The fair value for our Credit Agreement was estimated using a discounted cash flow methodology, while the fair value for our convertible debt was estimated based upon quoted market prices or recent sales activity, both of which are considered Level 2 inputs.  See Note 5 for discussion regarding our debt.

Settlement Assets and Settlement Liabilities

Settlement Assets and Settlement 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 merchant. The holding period is generally one to four business days depending on the payment model and contractual terms with the merchant. During the holding period, cash is held in trust with various major financial institutions and a corresponding liability is recorded for the amounts owed to the merchant. At any given time, there may be differences between the cash held in trust and the corresponding liability due to the timing of operating-related cash transfers.

Concentrations of Credit Risk

Concentrations of Credit Risk.  In the normal course of business, we are exposed to credit risk. The principal concentrations of credit risk relate to cash deposits, cash equivalents, short-term investments, and accounts receivable. We regularly monitor credit risk exposures and take steps to mitigate the likelihood of these exposures resulting in a loss. We hold our cash deposits, cash equivalents, and short-term investments with financial institutions we believe to be of sound financial condition.

We are exposed to credit risk related to settlement assets and risk of loss related to our settlement obligations. We hold our settlement assets in major financial institutions we believe to be of sound financial condition. To mitigate the risk of loss due to non-performance or non-payment by a merchant, we perform credit risk evaluations based on multiple criteria and may require a cash deposit from the merchant depending on their risk profile. If a deposit is required, the cash is held in a segregated bank account for the duration of the relationship with the merchant. These deposits are restricted and are fully offset by corresponding liabilities and are included in other assets and other liabilities in our Balance Sheets.

We generally do not require collateral or other security to support accounts receivable. We evaluate the credit worthiness of our customers in conjunction with our revenue recognition processes, as well as through our ongoing collectability assessment processes for accounts receivable. We maintain an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific customers, historical trends, and other information. We use various judgments and estimates in determining the adequacy of the allowance for doubtful accounts receivable. See Note 3 for additional details of our concentration of accounts receivable.

The activity in our allowance for doubtful accounts receivable is as follows (in thousands):

	2020			2019			2018
Balance, beginning of year	$	3,735		$	3,115		$	4,149
Additions to expense		1,481			778			462
Write-offs		(1,532	)		(158	)		(1,659	)
Recoveries		—			—			—
Other		(56	)		—			163
Balance, end of year	$	3,628		$	3,735		$	3,115

Property and Equipment

Property and Equipment.  Property and equipment are recorded at cost (or at estimated fair value if acquired in a business combination) and are depreciated over their estimated useful lives ranging from three to ten years. Leasehold improvements are depreciated over the shorter of their economic life or the lease term. Depreciation expense is computed using the straight-line method for financial reporting purposes. Depreciation expense for all property and equipment is reflected in our Income Statements separately in the aggregate and is not included in the cost of revenue or the other components of operating expenses..

Software

Software.  We expend substantial amounts on R&D, particularly for new solutions and services, and enhancements of existing solutions and services. For development of software solutions that are to be licensed by us, we expense all costs related to the development of the software until technological feasibility is established. For development of software to be used internally (e.g., cloud-based systems software), we expense all costs prior to the application development stage.

During 2020, 2019, and 2018, we expended $122.8 million, $128.0 million, and $124.0 million, respectively, on R&D projects. We did not capitalize any R&D costs in 2020, 2019, and 2018, as the costs subject to capitalization during these periods were not material. We did not have any capitalized R&D costs included in our December 31, 2020 and 2019 Balance Sheets.

Realizability of Long-Lived Assets

Realizability of Long-Lived Assets.  We evaluate our long-lived assets, other than goodwill, for possible impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. A long-lived asset is impaired if estimated future undiscounted cash flows associated with that asset are insufficient to recover the carrying amount of the long-lived asset. If deemed impaired, the long-lived asset is written down to its estimated fair value.

Goodwill

Goodwill.  We evaluate our goodwill for impairment on an annual basis, as well as we may evaluate our goodwill on a more periodic basis (e.g., quarterly) if events occur or circumstances change that could indicate a potential impairment may have occurred. Goodwill is considered impaired if the carrying value of the reporting unit which includes the goodwill is greater than the estimated fair value of the reporting unit.

Contingencies

Contingencies.  We accrue for a loss contingency when: (i) it is probable that an asset has been impaired, or a liability has been incurred; and (ii) the amount of the loss can be reasonably estimated. The determination of loss contingencies is subject to various judgments and estimates. We do not record the benefit from a gain contingency until the benefit is realized.

Earnings Per Common Share

Earnings Per Common Share (“EPS”). Basic and diluted EPS amounts are presented on the face of our Income Statements.

The reconciliation of the basic and diluted EPS denominators related to the common shares is included in the following table (in thousands):

	2020		2019		2018
Basic weighted-average common shares		32,010		32,051		32,488
Dilutive effect of restricted common stock		268		282	218
Dilutive effect of Stock Warrants		—		132	149
Diluted weighted-average common shares		32,278		32,465		32,855

The Convertible Notes have a dilutive effect only in those periods in which our average stock price exceeds the current effective conversion price (see Note 5).

The Stock Warrants have a dilutive effect only in those periods in which our average stock price exceeds the exercise price of $26.68 per warrant (under the treasury stock method) and are not subject to performance vesting conditions (see Note 12).  

Potentially dilutive common shares related to unvested restricted stock and Stock Warrants were excluded from the computation of diluted EPS, as the effect was antidilutive, and were not material in any period presented.

Equity Method Investment

Equity Method Investment.  During 2020, we made an additional $1.5 million investment in a payment technology and services company that enables omni-channel digital payments in Latin America.  As of December 31, 2020 and 2019, we held an 15% and 8% noncontrolling interest with a carrying value of $7.9 million and $6.6 million, respectively. 

Stock-Based Compensation

Stock-Based Compensation.  Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee directors. We measure stock-based compensation cost at the grant date of the award, based on the estimated fair value of the award and recognize the cost (net of estimated forfeitures) over the requisite service period.

Income Taxes

Income Taxes.  We account for income taxes using the asset and liability method. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. Deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Accounting Pronouncement Adopted and Accounting Pronouncement Issued But Not Yet Effective

Accounting Pronouncement Adopted.  In January 2019, we adopted ASU No. ASU 2016-02, Leases (Topic 842) (“ASC 842”) which required lessees to recognize a lease liability and a right-of-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet.  As we adopted ASC 842 utilizing the effective date method of transition, prior period information in our Financial Statements was not adjusted.  In conjunction with the adoption of ASC 842, we recorded a balance sheet gross up of approximately $80 million, related to the right-of-use assets and lease liabilities, and have included the amortization of the right-of-use-assets in the changes in other current and non-current assets and liabilities and the accretion and payments of lease liabilities in the changes in trade accounts payable and accrued liabilities, respectively, on our Statement of Cash Flows.

Accounting Pronouncement Issued But Not Yet Effective.  In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. ASU 2020-06 also amends the related Earnings Per Share guidance. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a fully retrospective or modified retrospective basis. The Company is currently evaluating the timing, method of adoption and overall impact of this standard on its consolidated financial statements.

Cloud and Related Solutions Revenue

Revenue Recognition

Cloud and Related Solutions

Our cloud and related solutions revenue include: (i) our software-as-a-service (“SaaS”), revenue management solutions, and various related ancillary services; (ii) our managed services offering in which we operate software solutions (primarily our software solutions) on behalf of our customers; and (iii) cloud-based payment processing transaction services.  

We contract for our cloud-based revenue management solutions using long-term arrangements whose terms have typically ranged from three to five years. These arrangements consist of a series of multiple services delivered daily or monthly, to include such things as: (i) revenue and customer engagement solutions; (ii) business support services (e.g., workforce management tools, consumer credit verifications, etc.); (iii) digital enablement and delivery functions; and (iv) customer statement invoice printing and mailing services. The fees for these services typically are billed to our customers monthly based upon actual monthly volumes and/or usage of services (e.g., the number of customer accounts maintained on our solutions, the number of transactions processed on our solutions, and/or the quantity and content of the monthly statements and mailings processed through our solutions).

For cloud-based revenue management solution contracts, the total contract consideration (including impacts of discounts or incentives) is primarily variable dependent upon actual monthly volumes and/or usage of services; however, these contracts can also include ancillary fixed consideration in the form of one-time, monthly, or annual fees. Pricing of products and services in these contracts is generally at stand-alone selling price, with no allocation of value between the individual performance obligations. In situations where we do an allocation, we determine stand-alone selling price based on established pricing and/or cost, plus an applicable margin. Revenue is generally recognized based on activities performed over a series of daily or monthly periods.

We contract for managed services solutions using long-term arrangements whose terms have typically ranged from three to five years.  Under managed services agreements, we operate software products (primarily our software solutions) on behalf of our customers: (i) out of a customer’s data center; (ii) out of a data center we own and operate; or (iii) out of a third-party data center we contract with for such services. Managed services can also include us providing other services, such as transitional services, fulfillment, remittance processing, operational consulting, back office, and end-user billing services.

For managed services contracts, the total contract consideration is typically a fixed monthly fee, but these contracts may also have variable fee components. The fees for these services typically are billed to our customers on a monthly basis.  Unless managed services are included with a software license contract (as discussed further below), there is generally only one performance obligation and revenue is recognized for these arrangements on a ratable basis as the services are performed.

Our contracts for payment processing transaction services are generally month-to-month or fixed term with automatic renewals. Services provided under these arrangements primarily include Automated Clearing House (“ACH”) transaction processing, credit/debit card processing, web-based and telephone payment processing, and real-time check verification and authentication services. The fees for these services typically are billed on a monthly basis.

Our payment processing services are comprised of one performance obligation. Revenue for payment processing services is based primarily on a fee per transaction or a percentage of the transaction principal and recognized as delivered over a series of daily service periods.  Transaction fees collected from customers are recognized as revenue on a gross basis when we are the principal in completing the payment processing transaction. As a principal to the transaction, we control the service of processing payments on our platform. We bear primary responsibility for the fulfillment of the payment service, contract directly with our customers, and have full discretion in determining the fee charged to our customers which is independent of the costs we incur when we utilize payment processors or other financial institutions to perform services on our behalf.  We therefore bear full margin risk when completing a payment processing transaction.  Transaction fees paid to third-party payment processors and other financial institutions are primarily comprised of interchange and other payment-related fees paid in conjunction with the delivery of service to customers under our payment services contracts.  These fees are recognized in cost of revenue.  

Fees related to set-up or implementation activities for both cloud-based solution and managed services contracts are deferred and recognized ratably over the related service period to which the activities relate.

Depending on the significance of variable consideration, number of products/services, complex pricing structures and long-term nature of these types of contracts, the judgments and estimates made in this area could have a significant effect on the amount and timing of revenue recognized in any period.

Software and Services Revenue

Revenue Recognition

Software and Services

Our software and services revenue relates primarily to: (i) software license sales on either a perpetual or term license basis; and (ii) professional services to implement the software. Our software and services contracts are often contracted in bundled arrangements that include not only the software license and related implementation services, and may also include maintenance, managed services, and/or additional professional services.

For our software arrangements, total contract consideration is allocated between the separate performance obligations based on stand-alone selling prices for software licenses, cost plus applicable margin for services and established pricing for maintenance.  The initial sale of our software products generally requires significant production, modification, or customization, such that the delivery of the software license and related professional services required to implement the software represent one combined performance obligation that is satisfied over time based on hours worked (hours-based method). We are using hours worked on the project, compared against expected hours to complete the project, as the measure to determine progress toward completion as we believe it is the most appropriate metric to measure such progress. The software and services fees are generally fixed fees billed to our customers on a milestone or date basis.

The determination of the performance obligations and allocation of value for software license arrangements require significant judgment.  We generally determine stand-alone selling prices using pricing calculations (which include regional market factors) for our software license fees and maintenance, and cost-plus margins for services. Additionally, our use of an hours-based method of accounting for software license and other professional services performance obligations that are satisfied over time requires estimates of total project revenue and costs, along with the expected hours necessary to complete a project. Changes in estimates as a result of additional information or experience on a project as work progresses are inherent characteristics of this method of revenue recognition as we are exposed to business risks in completing these types of performance obligations. The estimation process to support our hours-based recognition method is more difficult for projects of greater length and/or complexity. The judgments and estimates made for these types of obligations could: (i) have a significant effect on revenue recognized in any period by changing the amount and/or the timing of the revenue recognized; and/or (ii) impact the expected profitability of a project, including whether an overall loss on an arrangement has occurred. To mitigate the inherent risks in using this hours-based method, we track our current hours expended against our estimates on a periodic basis and continually reevaluate the appropriateness of our estimates.

In certain instances, we sell software license volume upgrades, which provide our customers the right to use our software to process higher transaction volume levels. In these instances, we analyze the contract to determine if the volume upgrade is a separate performance obligation and if so, we recognize the value associated with the software license as revenue on the effective date of the volume upgrade.

A portion of our professional services revenue is contracted separately (e.g., business consulting services, etc.). Such contracts can either be on a fixed-price or time-and-materials basis.  Revenue from fixed-price professional service contracts is recognized using an estimated hours-based method, as these professional services represent a performance obligation that is satisfied over time.  Revenue from professional services contracts billed on a time-and-materials basis is recognized as the services are performed.

Maintenance Revenue

Revenue Recognition

Maintenance

Our maintenance revenue relates primarily to support of our software once it has been implemented and placed in service.  Maintenance revenue is recognized ratably over the software maintenance period as services are provided. Our maintenance consists primarily of customer and product support, technical updates (e.g., bug fixes, etc.), and unspecified upgrades or enhancements to our software products. If specified upgrades or enhancements are offered in a contract, which are rare, they are accounted for as a separate performance obligation. Maintenance may be invoiced to our customers on a monthly, quarterly, or annual basis.