Revenue Recognition

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Revenue Recognition

Revenue is recognized upon transfer of control of promised goods or services to our customers, or when performance obligations under contract have been satisfied, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Further, under ASC 606, contract assets or contract liabilities that arise from a past performance but require a further performance obligation to be satisfied as a condition of settlement must be identified and recorded on the balance sheet until respectively settled.

The Company performs the following steps in order to properly determine revenue recognition and identify relevant contract assets and contract liabilities:

● identify the contract with a customer;

● identify the performance obligations in the contract;

● determine the transaction price;

● allocate the transaction price to the performance obligations in the contract; and 

● recognize revenue when, or as, we satisfy a performance obligation.

Accounting Policy - Revenue Recognition

The Company earns revenue by providing leads, advertising and mobile products and services used by Dealers and Manufacturers in their efforts to market and sell new and used vehicles to consumers. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. We record revenue on distinct performance obligations at a single point in time, when control is transferred to the customer, which is consistent with past practice.

The Company has three main revenue sources – Lead fees, advertising and other revenue. Accordingly, we recognize revenue for each source as described below:

●  Lead fees - paid by Dealers and Manufacturers participating in the Company’s Lead programs and are comprised of Lead transaction and/or monthly subscription fees. Lead fees are recognized in the period when service is provided.

●  Advertising - fees paid by Dealers and Manufacturers for 1) display advertising on our website and 2) fees from our clicks program. Revenue is recognized in the period advertisements are displayed on our websites or the period in which clicks have been delivered, as applicable. The Company recognizes gross revenue from the delivery of action-based ads in the period in which a user takes the action for which the marketer contracted with us. For advertising revenue arrangements where we are not the principal, we recognize revenue on a net basis.

●  Other Revenues - consists primarily of revenues from our mobile products and revenues from our Reseller Agreement entered into with SaleMove, Inc. Revenue is recognized in the period in which products or services are sold.

Variable Consideration

The Company’s products, namely Leads, are generally sold with a right-of-return for services that do not meet customer requirements as specified by the contract. Rights-of-return are estimable, and provisions for estimated returns are recorded as a reduction in revenue by the Company in the period revenue is recognized, and thereby accounted for as variable consideration. We include the allowance for customer credits in our net accounts receivable balances on the Company’s balance sheet at period end, which is consistent with past practice. Allowance for customer credits totaled $186,000 and $213,000 as of March 31, 2018 and December 31, 2017, respectively.

See further discussion below on Significant Judgments exercised by the Company in regards to variable consideration.

Contract Assets and Contract Liabilities

Unbilled Revenue

Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing. From time-to-time, the Company may have balances on its balance sheet representing revenue that has been recognized but not-yet invoiced, for which we have satisfied contract performance obligation and have a right to receive payment. These receivable balances are driven by the timing of administrative transaction processing, rather than indicative of partially complete performance obligations, or unbilled revenue, which represents revenue that is partially earned, control of promised services has not yet transferred to the customer and for which we have not earned complete right to payment.

Deferred Revenue

We defer the recognition of revenue when cash payments are received or due in advance of satisfying our performance obligations, including amounts which are refundable. Such activity is not a common practice of operation.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days from date of invoice.

Practical Expedients and Exemptions

We exclude from the transaction price all sales taxes related to revenue producing transactions collected from the customer for a governmental authority.

We apply the new revenue standard requirements to a portfolio of contracts (or performance obligations) with similar characteristics for transactions where it is expected that the effects on the financial statements of applying the revenue recognition guidance to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio.

We generally expense incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs primarily relate to sales commissions and are recorded in selling, marketing and distribution expense.

Significant Judgments

The Company provides Dealers and Manufacturers with various opportunities to market their vehicles to potential vehicle buyers, namely via consumer lead and traffic referrals and online advertising products and services. Properly accounting for revenue generated by these digital marketing activities, as well as any related assets and liabilities that may arise in conjunction with these activities, requires management to exercise significant judgment:

● Arrangements with Multiple Performance Obligations

The Company enters into contracts with customers that often include multiple products and services to a customer. Determining whether products and/or services are distinct performance obligations that should be accounted for singularly or separately may require significant judgment.

● Variable Consideration and Customer Credits

The Company’s products are generally sold with a right-of-return. The Company sometimes may also provide other customer credits or sales incentives which are accounted for as variable consideration when determining the allocation of the transaction price to performance obligations under a contract. The allowance for customer credits is an estimate of adjustments for services that do not meet the customer requirements. Additions to the estimated allowance for customer credits are recorded as a reduction of revenues and are based on the Company’s historical experience of: (i) the amount of credits issued; (ii) the length of time after services are rendered that the credits are issued; (iii) other factors known at the time; and (iv) future expectations. Reductions in the estimated allowance for customer credits are recorded as an increase in revenues. As specific customer credits are identified, they are written off against the previously established estimated allowance for customer credits with no impact on revenues. Returns and credits are measured at contract inception, with respective obligations reviewed each reporting period or as further information becomes available, whichever is earlier, and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur. Customer credits are included in the net accounts receivable balance of the Company’s balance sheets as of March 31, 2018 and December 31, 2017.

The Company has not made any significant changes to judgments in applying ASC 606 during the three months ended March 31, 2018.

Disaggregation of Revenue

We disaggregate revenue from contracts with customers by revenue source and have determined that disaggregating revenue into these categories sufficiently depicts the differences in the nature, amount, timing and uncertainty of our revenue streams. The Company has three main sources of revenue: lead fees, advertising and other revenues.

The following table summarizes revenue from contracts with customers, disaggregated by revenue source, for the three months ended March 31, 2018 and 2017. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

		Three Months Ended March 31,
		2018		2017
	(in thousands)
Lead fees		$	24,080	$	29,092
Advertising
Clicks			6,691		6,514
Display and other advertising			1,396		1,455
Other revenues			182		280
Total revenue		$	32,349	$	37,341