Revenue

The Company recognizes revenue when control of the promised good or service is transferred to the customer in an amount that the Company expects to be entitled in exchange for the good or service.

In accordance with the requirements of ASC 606, the disclosure of the impact of adoption on the Company’s consolidated income statement and balance sheet is as follows:



	For the Three Months Ended March 31, 2018
	ASC 606		ASC 605		Effect of Change
Income Statement
Revenues	$	37,637,793	$	37,638,876	$	(1,083	)

The following table presents the Company’s revenues disaggregated by revenue source for the three months ended March 31, 2018 and 2017:



	Three Months Ended March 31,
	2018				2017⁽¹⁾
	$		%		$		%
User pay revenue	$	22,405,530	59.5	%	$	1,598,296	8.0	%
Advertising	15,232,263		40.5	%	18,460,501		92.0	%
Total revenue	$	37,637,793	100.0	%	$	20,058,797	100.0	%

(1) Prior period amounts have not been adjusted under the modified retrospective adoption method.

User Pay Revenue

User pay revenue is earned from in-app purchase products and subscriptions sold to mobile application and website users. The Company offers in-app products such as Credits, Points, Gold and Icebreakers. Users purchase these products to exchange for the Company’s virtual products. These products allow users to engage with other users on the applications and in live video, and put users in the spotlight, helping them get more attention from the community in order to meet more people faster. Platform users do not own the Credits, Points, Gold or Icebreakers but have a limited right to use the Credits, Points, Gold or Icebreakers on virtual products offered for sale on the Company’s platforms. Credits may be gifted to other user accounts in the form of Diamonds, and Diamonds may be redeemed for cash. Except for Diamonds, the Company’s in-app products are not transferable, cannot be sold or exchanged outside of the Company’s platforms, are not redeemable for any sum of money, and can only be used on the Company’s platforms. In-app products are recorded in deferred revenue when purchased and recognized as revenue over time when: (i) the Credits, Points, Gold or Icebreakers are used by the customer; or (ii) the Company determines the likelihood of the Credits, Points, Gold or Icebreakers being redeemed by the customer is remote (breakage) and there is not a legal obligation to remit the unredeemed Credits, Points, Gold or Icebreakers to the relevant jurisdiction. The determination of the breakage rate is based upon Company-specific historical redemption patterns. Breakage is recognized in revenue as the Credits, Points, Gold and Icebreakers are used on a pro rata basis over a three or six-month period (life of the user) beginning at the date of the sale and are included in revenue in the condensed consolidated statements of operations and comprehensive income. Breakage recognized during the three months ended March 31, 2018 and 2017 was $0.7 million and $0.3 million, respectively. For MeetMe+, Tagged, Skout and Lovoo subscription based products, the Company recognizes revenue over the term of the subscription.

Under ASC 606, user pay revenue has a single performance obligation. Subscriptions provide customers with premium access to the application and include credits on MeetMe+ while in app purchases are satisfied by standing ready to allow users to exchange credits for virtual products. The consideration received for these services is fixed at the time of purchase. The customer simultaneously receives and consumes the benefits of user pay features as the Company performs the services. Revenue is recorded in deferred revenue when purchased by customer and recognized as revenue over time as the performance obligation is satisfied.

The adoption of ASC 606 primarily affected the timing of revenue recognition for MeetMe+ subscriptions, which were historically recognized using the revenue recognition methodology for credits. MeetMe+ subscription revenue will be recognized over the subscription period using a mid-month convention beginning on January 1, 2018. The change in revenue recognition methodology resulted in a cumulative-effect adjustment of $0.02 million recognized as a credit to retained earnings and a reduction to deferred revenue on January 1, 2018. The adoption of ASC 606 did not have an impact on the: (i) subscription revenue for Tagged, Skout and Lovoo or (ii) in-app purchases revenue for MeetMe, Tagged, Skout and Lovoo.

Advertising Revenue

Advertising revenue is comprised of mobile and web advertising. Within each revenue stream, the Company has one performance obligation to publish advertisements as specified by the respective contracts. The amount of consideration that the Company expects to receive for the services is variable based on the volume of advertisement impressions. The Company does not offer any discounts or free impressions and has not historically experienced any collectability issues.

The Company also recognizes revenue from cross-platform/social theater and cost-per-action (“CPA”) offers. Each of these revenue streams has one performance obligation. For cross-platform/social theater contracts, the consideration promised is fixed per ad campaign and term, and required services to be delivered. However, the monthly revenue could vary depending on the actual delivery of impressions throughout the contract term. These contracts are typically based on cost per thousand (CPM) rates and number of impressions served due to traffic volume and the specific ad campaign. For CPA offers, the consideration promised is variable based on a revenue share rate, and/or based on the number of actions delivered per the agreement. As such, the Company recognizes all actual advertising revenues from impressions or actions delivered on a monthly basis rather than estimating revenue at the beginning of the period.

The Company has transactions with several partners that qualify for principal agent considerations. The Company recognizes revenue, net of amounts retained by the third-party partners, pursuant to revenue sharing agreements with advertising networks. The form of the agreements was such that the Company provided services in exchange for a fee. The Company determines only the fee for providing its services to advertising agencies and has no latitude in establishing prices with third party advertisers.

In instances where the Company works directly with an advertiser, revenue is recognized on a gross basis. The Company is the primary obligor in arrangements made with direct advertisers, as there is no third-party facilitating or managing the sales process. The Company is solely responsible for determining price, product or service specifications, and which advertisers to use. The Company assumes all credit risk in the sales arrangements made with direct advertisers.

The Company has determined that the performance obligation under the advertising revenue streams is recognized ratably over time utilizing the “Right to Invoice” practical expedient as customers simultaneously consume and receive benefits of the advertisement impressions.

The adoption of ASC 606 did not result in a transition adjustment on the recognition of advertising revenues as the Company’s revenue recognition under ASC 605 is consistent with the guidance under ASC 606.

Deferred Revenue

The Company records deferred revenue when the consideration for a good or service is received in advance of its performing the obligation. The deferred revenue balance for the three months ended March 31, 2018 increased $22.7 million due to subscription and in-app purchases consideration received in advance of providing the good or service to the customers. This amount was offset by $22.4 million revenue recognized from the deferred revenue balance as of December 31, 2017 due to performance obligations satisfied during the three months ended March 31, 2018.

ASC 606 Practical Expedient Elections

The Company elected the following practical expedients in applying ASC 606 to its revenue streams:

Portfolio Approach - Contracts within each revenue stream have similar characteristics and the Company expects that the effects on the financial statements would not differ materially from applying this guidance to the individual contracts. As such, the Company applied the portfolio approach to its contracts.

Sales Tax Exclusion from Transaction Price - The Company does not collect sales tax for advertising revenue. Sales taxes are added to the transaction price by the payment processors for subscription and in-app purchases, when applicable. However, these sales taxes are not included in the Company’s consideration amount.

Contract Costs - The Company does not incur costs to obtain or fulfill contracts in most revenue streams. There are sales commissions incurred for Social Theater contracts, however these contracts are typically for a period of less than a year. As the costs are expected to be recognized is one year or less, these costs are recorded within sales and marketing expenses rather than being deferred and recognized over the term of the contract.

Right to Invoice - Revenue from advertising contracts is recognized over time based on the Company’s performance completed to date. The Company will apply the invoice expedient and recognize revenue in the amount to which the entity has a right to invoice as measured by the amount of impressions or actions delivered within each period.

Unsatisfied Performance Obligations - The Company’s disclosures exclude the value of unsatisfied performance obligations for (i) its contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for performance to date.