Revenue Recognition

6 Months Ended

Mar. 31, 2024

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Note 3. Revenue Recognition

We primarily derive revenue from the following sources: (1) royalty-based software license arrangements, (2) connected services, and (3) professional services. Revenue is reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the related transaction including mandatory government charges that are passed through to our customers. We account for a contract when both parties have approved and committed to the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

(a) Disaggregated Revenue

Revenues, classified by the major geographic region in which our customers are located, for the three and six months ended March 31, 2024 and 2023 (dollars in thousands):

	Three Months Ended March 31,				Six Months Ended March 31,
	2024		2023		2024		2023
Revenues:
United States	$	16,018	$	21,742	$	115,487	$	43,098
Other Americas		52		28		136		54
Germany		35,424		24,627		54,557		42,791
Other Europe, Middle East and Africa		3,457		3,512		8,232		7,184
Japan		4,548		5,738		10,171		31,579
Other Asia-Pacific		8,326		12,746		17,577		27,345
Total net revenues	$	67,825	$	68,393	$	206,160	$	152,051

For the three and six months ended March 31, 2023, revenues within China were $7.0 million and $16.7 million, respectively, which were over 10% of revenues.

Revenues relating to two customers accounted for $9.1 million, or 13.4%, and $7.4 million, or 10.9%, of revenues for the three months ended March 31, 2024. Revenues relating to one customer accounted for $79.9 million, or 38.8%, of revenues for the six months ended March 31, 2024. On October 31, 2023, we entered into an early termination agreement relating to a legacy contract acquired by Nuance Communications Inc. (“Nuance”) through a 2013 acquisition. Previously, the term of the contract ended on December 31, 2025, whereas the agreement signed on October 31, 2023 updated the termination date to December 31, 2023. There is no cash flow associated with this legacy contract. The effect of this change was to accelerate $67.8 million of deferred revenue into the first quarter of fiscal year 2024.

Revenues relating to two customers accounted for $10.8 million, or 15.8%, and $7.2 million, or 10.5%, of revenues for the three months ended March 31, 2023. Revenues relating to two customers accounted for $22.4 million, or 14.7%, and $20.8 million, or 13.7%, of revenues for the six months ended March 31, 2023.

(b) Contract Acquisition Costs

We are required to capitalize certain contract acquisition costs. The capitalized costs primarily relate to paid commissions. The current and noncurrent portions of contract acquisition costs are included in Prepaid expenses and other current assets and in Other assets, respectively. As of March 31, 2024 and September 30, 2023, we had $7.4 million and $8.0 million of contract acquisition costs, respectively. We had amortization expense of $1.0 million and $0.8 million related to these costs during the three months ended March 31, 2024 and 2023, respectively, and $1.7 million and $1.6 million for the six months ended March 31, 2024 and 2023, respectively. There was no impairment related to contract acquisition costs.

(c) Capitalized Contract Costs

We capitalize incremental costs incurred to fulfill our contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy our performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. The current and noncurrent portions of capitalized contract fulfillment costs are presented as Deferred costs.

We had amortization expense of $1.7 million and $2.5 million related to these costs during the three months ended March 31, 2024 and 2023, respectively, and $5.8 million and $5.2 million for the six months ended March 31, 2024 and 2023, respectively. There was no impairment related to contract costs capitalized.

(d) Trade Accounts Receivable and Contract Balances

We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e., only the passage of time is required before payment is due). We present such receivables in Accounts receivable, net at their net estimated realizable value. Accounts receivable, net as of September 30, 2023 and 2022 was $61.3 million and $45.1 million, respectively. We maintain an allowance for credit losses to provide for the estimated amount of receivables and contract assets that may not be collected.

Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.

Contract assets include unbilled amounts from long-term contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not solely subject to the passage of time. The current and noncurrent portions of contract assets are included in Prepaid expenses and other current assets and Other assets, respectively. The table below shows significant changes in contract assets (dollars in thousands):

	Contract assets
Balance as of September 30, 2023	$	56,708
Revenues recognized but not billed		20,768
Amounts reclassified to Accounts receivable, net		(31,481	)
Write-off of contract assets		(5,995	)
Effect of foreign currency translation		501
Balance as of March 31, 2024	$	40,501

During the three months ended March 31, 2024, we recorded a $6.1 million provision relating to the bankruptcy of one fitness equipment manufacturer, of which $6.0 million relates to a contract asset and $0.1 million relates to a trade receivable.

Our contract liabilities, which we present as deferred revenue, consist of advance payments and billings in excess of revenues recognized. We classify deferred revenue as current or noncurrent based on when we expect to recognize the revenues. The table below shows significant changes in deferred revenue (dollars in thousands):

	Deferred revenue
Balance as of September 30, 2023	$	222,599
Amounts billed but not recognized		48,776
Revenue recognized		(124,016	)
Effect of foreign currency translation		1,592
Balance as of March 31, 2024	$	148,951

(e) Remaining Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at March 31, 2024 (dollars in thousands):

	Within One Year		Two to Five Years		Greater than Five Years		Total
Total revenue	$	93,633	$	88,400	$	30,805	$	212,838

The table above includes fixed remaining performance obligations and does not include contingent usage-based activities, such as royalties and usage-based connected services. On October 31, 2023, we entered into an early termination agreement relating to a legacy contract acquired by Nuance through a 2013 acquisition. Previously, the term of the contract ended on December 31, 2025, whereas the agreement signed on October 31, 2023 updated the termination date to December 31, 2023. There is no cash flow associated with this legacy contract. The effect of this change was to accelerate $67.8 million of deferred revenue into the first quarter of fiscal year 2024. We provided services to a separate customer, who in turn provided services to our legacy customer. Our customer terminated services on October 31, 2023. There is no cash flow associated with this contract. The effect of this termination was to accelerate $9.9 million of deferred revenue into the first quarter of fiscal year 2024.