Revenue Recognition

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

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 the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. No single customer accounted for or exceeded 10% of our total revenue for the period ended June 30, 2020.

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 $91.6 million and $71.0 million was recognized during the three months ended June 30, 2020 and 2019, respectively, and $169.7 million and $137.4 million was recognized during the six months ended June 30, 2020 and 2019, respectively.

Under Topic 606, the Company defers all incremental commission costs (contract acquisition costs) to obtain the contract. The contract acquisition costs, which are comprised of prepaid sales commissions, have balances at June 30, 2020 and December 31, 2019 of $36.1 million and $32.0 million, respectively. The Company amortizes these costs over the related period of benefit using the customers expected life that the Company determines to be three to five years, which is consistent with the transfer to the customer of the services to which the asset relates. The Company classifies contract acquisition costs as long-term unless they have an original amortization period of one year or less.

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 Gainshare (formerly Pay for Performance) 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.

Remaining Performance Obligation

As of June 30, 2020, the aggregate amount of the total transaction price allocated in contracts with original duration of greater than one year to the remaining performance obligations was $221.0 million. Approximately 90% of the Company’s remaining performance obligations is expected to be recognized during the next 24 months, with the balance recognized thereafter. The aggregate balance of unsatisfied performance obligations represents contracted revenue that has not yet been recognized, and does not include contract amounts that are cancelable by the customer, amounts associated with optional renewal periods, and any amounts related to performance obligations, which are billed and recognized as they are delivered. The Company has elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are part of contracts with an original expected duration of one year or less. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligation pursuant to ASC 606.

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 remits 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 the Company’s performance. The increase in the deferred revenue balance as of June 30, 2020 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations, partially offset by $60.5 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2019.

The following table presents deferred revenue by revenue source (amounts in thousands):



	Deferred Revenue
	As of June 30, 2020		As of December 31, 2019
Hosted services – Business	$	88,864	$	82,892
Hosted services – Consumer	765		687
Professional services – Business	2,461		5,172
Total deferred revenue - short term	$	92,090	$	88,751

Hosted services – Business	329		—
Professional services – Business	2,793		438
Total deferred revenue - long term	$	3,122	$	438

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,
	2020		2019		2020		2019
Revenue:
Hosted services – Business	$	72,382	$	53,672	$	133,435	$	105,209
Hosted services – Consumer	7,587		6,124		13,826		11,531
Professional services	11,634		11,163		22,430		20,621
Total revenue	$	91,603	$	70,959	$	169,691	$	137,361

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,
	2020		2019		2020		2019
United States	$	59,559	$	41,315	$	108,109	$	79,904
Other Americas ⁽¹⁾	3,048		1,883		5,068		4,652
Total Americas	62,607		43,198		113,177		84,556
EMEA ^{(2) (4)}	19,692		19,911		39,182		38,024
APAC ⁽³⁾	9,304		7,850		17,332		14,781
Total revenue	$	91,603	$	70,959	$	169,691	$	137,361

⁽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 $12.5 million and $13.0 million for the three months ended June 30, 2020 and 2019, respectively, and from the Netherlands of $0.6 million and $2.5 million for the three months ended June 30, 2020 and 2019, respectively. Includes revenues from the United Kingdom of $25.1 million and $24.7 million for the six months ended June 30, 2020 and 2019, respectively, and from Netherlands of $1.9 million and $5.0 million for the six months ended June 30, 2020 and 2019, 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 condensed consolidated balance sheet. Contract acquisition costs represent prepaid sales commissions. The opening and closing balances of the Company's accounts receivable, unbilled receivables, contract acquisition costs and deferred revenues are as follows (amounts in thousands):



	Accounts Receivable ⁽¹⁾			Unbilled Receivable ⁽¹⁾			Contract Acquisition Costs noncurrent		Deferred Revenue (current)		Deferred Revenue (long term)
Opening Balance as of December 31, 2019	$	70,318		$	17,302		$	31,965	$	88,751	$	438
(Decrease) Increase, net	(8,222		)	(4,211		)	4,178		3,339		2,684
Ending Balance as of June 30, 2020	$	62,096		$	13,091		$	36,143	$	92,090	$	3,122

⁽¹⁾ These accounts include the $0.7 million adjustment in connection with the adoption of ASU 2016-13 (Topic 326).

Accounts Receivable, Net

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities, which are included in accrued liabilities and other long-term liabilities) on the condensed consolidated balance sheet. Under the typical payment terms of our over time contracts, the customer pays us either performance-based payments or progress payments. Amounts billed and due from our customers are classified as receivables on the condensed consolidated balance sheet. Accounts receivable is presented net of an allowance for doubtful accounts and sales reserve of $4.4 million and $2.9 million at June 30, 2020, respectively and $3.1 million and $1.1 million at December 31, 2019, respectively.

An allowance for doubtful accounts is established to recognize expected credit losses on accounts receivable balances. Judgment is required in the estimation of the allowance and the Company evaluates the collectability of its accounts receivable based on a combination of factors. If the Company becomes aware of a customer’s inability to meet its financial obligations, a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from the customer. For all other customers, the Company uses an aging schedule and recognize allowances for doubtful accounts based on the creditworthiness of the debtor, the age and status of outstanding receivables, the current business environment and its historical collection experience adjusted for current expectations for the customers or industry. Accounts receivable are written off against the allowance for uncollectible accounts when the Company determines amounts are no longer collectible.



Allowance for doubtful accounts (in thousands):	As of June 30, 2020
Balance at beginning of year, as adjusted for the adoption of ASU 2016-13 (Topic 326)	$	3,799
Accruals for credit loss charged to expense, net	629
Balance at end of period	$	4,428