Revenue Recognition

The majority of the Company’s revenue is generated from monthly service revenues and related professional services from the sale of the LivePerson services. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

The Company determines revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer;

•Identification of the performance obligations in the contract;

•Determination of the transaction price;

•Allocation of the transaction price to the performance obligations in the contract; and

•Recognition of revenue when, or as, the Company satisfies a performance obligation.

Total revenue of $61.7 million and $119.9 million recognized during the three months and six months ended June 30, 2018, under Topic 606, was not materially different from what would have been recognized under Topic 605.

Hosted Services- Business Revenue

Hosted Services Business revenue is reported at the amount that reflects the ultimate consideration expected to be received and primarily consist of fees that provide customers access to LiveEngage, the Company’s enterprise-class, cloud-based platform. The Company has determined such access represents a stand-ready service provided continually throughout the contract term. As such, control and satisfaction of this stand-ready performance obligation is deemed to occur over time. The Company recognizes this revenue over time on a ratable basis over the contract term, beginning on the date that access to the LiveEngage platform is made available to the customer. The passage of time is deemed to be the most faithful depiction of the transfer of control of the services as the customer simultaneously receives and consumes the benefit provided by the Company’s performance. Subscription contracts are generally one year or longer in length, billed, monthly, quarterly or annually in advance. There is no significant variable consideration related to these arrangements. Additionally, for certain of the Company's larger customers, the Company may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, the Company passes the fee it incurs with the labor provider and its fee for the hosted services through to its customers in the form of a fixed fee for each order placed via the Company's online engagement solutions. For these Pay for Performance ("PFP") arrangements in accordance with ASC-606, "Principal Agent Considerations", the Company acts as a principal in a transaction if it controls the specified goods or services before they are transferred to the customer.

Professional Services Revenues

Professional services revenue primarily consists of fees for deployment and optimization services, as well as training delivered on an on-demand basis which is deemed to represent a distinct stand-ready performance obligation. Professional Services Revenues are reported at the amount that reflects the ultimate consideration the Company expects to receive in exchange for such services. Control for the majority of the Company's Professional Services contracts passes over time to the customer and is recognized ratably over the contracted period, as the passage of time is deemed to be the most faithful depiction of the transfer of control. For certain deployment services, which are not deemed to represent a distinct performance obligation, revenue will be recognized in the same manner as the fee for access to the LiveEngage platform, and as such will be recognized on a straight-line basis over the contract term. For services billed on a fixed price basis, revenue is recognized over time based on the proportion performed using inputs as the measure of progress toward complete satisfaction of the performance obligation. Professional service contracts are generally one year or longer in length, billed, monthly, quarterly or annually in advance. There is no significant variable consideration related to these arrangements.

Contracts with Multiple Performance Obligations

Some of the Company's contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines the standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts, the cloud applications sold, and the number and types of users within its contracts.

Hosted Services- Consumer Revenue

For revenue from the Company's Consumer segment generated from online transactions between Experts and Users, revenue is recognized at an amount net of Expert fees in accordance with ASC 606, “Principal Agent Considerations,” due primarily to the fact that the Expert is the primary obligor. Additionally, the Company performs as an agent without any risk of loss for collection, and is not involved in selecting the Expert or establishing the Expert’s fee. The Company collects a fee from the consumer and retains a portion of the fee, and then remit the balance to the Expert. Revenue from these transactions is recognized at the point in time when the transaction is complete and no significant performance obligations remain.

Deferred Revenues

The Company records deferred revenues when cash payments are received or due in advance of its performance. The increase in the deferred revenue balance for the six months ended June 30, 2018 is primarily driven by cash payments received or due in advance of satisfying its performance obligations, partially offset by $26.2 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2017. The following table presents deferred revenue by revenue source (amounts in thousands):



	Deferred Revenue
	As of June 30, 2018		As of December 31, 2017
Hosted services – Business	$	38,063	$	27,011
Hosted services – Consumer	—		—
Professional services	11,443		8,552
Total deferred revenue	$	49,506	$	35,563

Disaggregated Revenue

The following table presents the Company's revenues disaggregated by revenue source (amounts in thousands):



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018		2017		⁽¹⁾	2018		2017		⁽¹⁾
Revenue:
Hosted services – Business	$	48,331	$	43,927		$	95,759	$	85,420
Hosted services – Consumer	4,952		4,460			9,632		8,630
Professional services	8,377		5,687			14,510		10,943
Total revenue	$	61,660	$	54,074		$	119,901	$	104,993
⁽¹⁾As noted above, prior period amounts have not been adjusted under the modified retrospective method.

Revenue by Geographic Location

The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented (amounts in thousands):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
United States	$	35,572	$	34,078	$	69,643	$	65,763
Other Americas ⁽¹⁾	2,547		1,968		3,806		3,940
Total Americas	38,119		36,046		73,449		69,703
EMEA ^{(2) (4)}	17,519		13,953		34,438		27,465
APAC ⁽³⁾	6,022		4,075		12,014		7,825
Total revenue	$	61,660	$	54,074	$	119,901	$	104,993

⁽¹⁾ Canada, Latin America and South America

⁽²⁾ Europe, the Middle East and Africa (“EMEA”)

⁽³⁾ Asia-Pacific (“APAC”)

⁽⁴⁾ Includes revenues from the United Kingdom of $11.9 million and $9.1 million for the three months ended June 30, 2018 and 2017, respectively, and $23.5 million and $18.2 million six months ended June 30, 2018 and 2017, respectively.

Information about Contract Balances

Amounts collected in advance of services being provided are accounted for as deferred revenue. Nearly all of the Company's deferred revenue balance is related to Hosted Services- Business Revenue.

In some arrangements, the Company allows customers to pay for access to LiveEngage over the term of the software license. The Company refers to these as subscription transactions. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables, anticipated to be invoiced in the next twelve months, are included in accounts receivable on the consolidated balance sheet. The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows (amounts in thousands):



	Accounts Receivable			Unbilled Receivable		Deferred Revenue (current)		Deferred Revenue (long term)
Opening Balance as of December 31, 2017	$	30,342		$	7,584	$	35,563	$	—
Increase (decrease), net	(640		)	823		11,812		2,131
Ending Balance as of June 30, 2018	$	29,702		$	8,407	$	47,375	$	2,131

As of June 30, 2018, the Company expects to recognize the long term performance obligations in 2019.