REVENUE RECOGNITION

9 Months Ended

Dec. 31, 2023

REVENUE RECOGNITION

REVENUE RECOGNITION

NOTE 3. REVENUE RECOGNITION

Disaggregation of Revenue

The Company views its segment results to be the best view of disaggregated revenue. Refer to Note 4 – Segments.

Remaining Performance Obligations

The remaining performance obligation (“RPO”) represents the aggregate amount of contractual deliverables yet to be recognized as revenue at the end of the reporting period. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts for which the customer is not committed. The customer is not considered committed when it is able to terminate for convenience without payment of a substantive penalty. The RPO also includes estimates of variable consideration. RPO estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustments for revenue that has not materialized and adjustments for currency.

At December 31, 2023, the aggregate amount of RPO related to customer contracts that are unsatisfied or partially unsatisfied was $34.5 billion. Approximately 59 percent of the amount is expected to be recognized as revenue in the next two years, approximately 34 percent in the subsequent three years, and the balance thereafter.

During the three and nine months ended December 31, 2023, revenue was increased by $12 million and $24 million, respectively, and during the three and nine months ended December 31, 2022, revenue was decreased by $3 million and increased by $4 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods, mainly due to changes in estimates on contracts with cost-to-cost measures of progress.

Contract Balances

The following table provides information about accounts receivable, contract assets and deferred income balances:

	December 31,		March 31,
(Dollars in millions)	2023		2023
Accounts receivable (net of allowances for credit losses of $24 at December 31, 2023 and $32 at March 31, 2023) *	$	1,658	$	1,523
Contract assets **		31		30
Deferred income (current)		793		820
Deferred income (noncurrent)		326		362

* Including unbilled receivable balances of $329 million at December 31, 2023 and $384 million at March 31, 2023.

** Contract assets represent goods or services delivered by the Company, which give the Company the right to consideration that is typically subject to milestone completion or client acceptance and are included within prepaid expenses and other current assets in the Consolidated Balance Sheet.

The amount of revenue recognized during the three and nine months ended December 31, 2023 that was included within the deferred income balance at the beginning of the period was $221 million and $501 million, respectively. The amount of revenue recognized during the three and nine months ended December 31, 2022 that was included within the deferred income balance at the beginning of the period was $249 million and $496 million, respectively.

The following table provides roll-forwards of the accounts receivable allowance for credit losses for the nine months ended December 31, 2023 and 2022.

	Nine Months Ended December 31,
(Dollars in millions)	2023		2022
Beginning balance	$	32	$	44
Additions (releases)		2		5
Write-offs		(6)		(8)
Other *		(4)		(6)
Ending balance	$	24	$	34

* Primarily driven by currency effects.

The contract assets allowance for credit losses was not material in any of the periods presented.

Major Clients

No single client represented more than 10 percent of the Company’s total revenue during the three and nine months ended December 31, 2023 and 2022. Other than receivables due from our former Parent, no single client represented more than 10 percent of the Company’s total accounts receivable balance as of December 31, 2023 or March 31, 2023.

Deferred Costs

Costs to acquire and fulfill customer contracts are deferred and amortized over the contract period or expected customer relationship life. The expected customer relationship period is determined based on the average customer relationship period, including expected renewals, for each offering type and ranges from three to six years. For contracts with an estimated amortization period of less than one year, we elected the practical expedient to expense incremental costs immediately.

The following table provides amounts of capitalized costs to acquire and fulfill customer contracts at December 31, 2023 and March 31, 2023:

	December 31,		March 31,
(Dollars in millions)	2023		2023
Deferred transition costs	$	781	$	856
Prepaid software costs		637		782
Capitalized costs to fulfill contracts		214		285
Capitalized costs to obtain contracts		279		313
Total deferred costs *	$	1,910	$	2,236

* Of the total deferred costs, $924 million was current and $987 million was noncurrent at December 31, 2023, and $1,070 million was current and $1,166 million was noncurrent at March 31, 2023.

The amount of total deferred costs amortized for the three months ended December 31, 2023 was $452 million, composed of $87 million of amortization of deferred transition costs, $227 million of amortization of prepaid software and $138 million of amortization of capitalized contract costs. The amount of total deferred costs amortized for the nine months ended December 31, 2023 was $1,364 million, composed of $259 million of amortization of deferred transition costs, $686 million of amortization of prepaid software and $418 million of amortization of capitalized contract costs.