Capitalized Contract Costs

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Capitalized Contract Costs

Contract Assets and Contract Liabilities

Contract assets represent rights to consideration in exchange for goods or services transferred to a customer when that right is conditional on something other than the passage of time. Contract liabilities represent deferred revenue.

Net contract assets (liabilities) as of September 30, 2020 and December 31, 2019 are as follows:

	September 30, 2020		December 31, 2019
Contract assets - current	$	47.0	$	38.4
Contract assets - long-term(i)	21.3		21.6
Deferred revenue - current	(197.4)		(246.4)
Deferred revenue - long-term	(122.5)		(147.0)

⁽ⁱ⁾Reported in other long-term assets on the company’s consolidated balance sheets

Significant changes during the three and nine months ended September 30, 2020 and 2019 in the above contract asset and liability balances were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue recognized that was included in deferred revenue at the beginning of the period	$	48.1	$	30.1	$	197.3	$	202.1

Capitalized Contract Costs

The company’s incremental direct costs of obtaining a contract consist of sales commissions which are deferred and amortized ratably over the initial contract life. These costs are classified as current or noncurrent based on the timing of when the company expects to recognize the expense. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets and in other long-term assets, respectively, in the company’s consolidated balance sheets. At September 30, 2020 and December 31, 2019, the company had $9.2 million and $9.1 million, respectively, of deferred commissions.

Amortization expense related to deferred commissions for the three and nine months ended September 30, 2020 and 2019 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Deferred commissions - amortization expense(i)	$	0.8	$	0.7	$	2.3	$	2.4

⁽ⁱ⁾Reported in selling, general and administrative expense in the company’s consolidated statements of income (loss)

Costs on outsourcing contracts are generally expensed as incurred. However, certain costs incurred upon initiation of an outsourcing contract (costs to fulfill a contract), principally initial customer setup, are capitalized and expensed over the initial contract life. These costs are included in outsourcing assets, net in the company’s consolidated balance sheets. The amount of such costs at September 30, 2020 and December 31, 2019 was $74.2 million and $75.8 million, respectively. These costs are amortized over the initial contract life and reported in Services cost of revenue.

During the three and nine months ended September 30, 2020 and 2019, amortization expense related to costs to fulfill a contract was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Costs to fulfill a contract - amortization expense	$	7.9	$	5.9	$	20.6	$	17.8

The remaining balance of outsourcing assets, net is comprised of fixed assets and software used in connection with outsourcing contracts. These costs are capitalized and depreciated over the shorter of the initial contract life or in accordance with the company’s fixed asset policy.Remaining Performance ObligationsRemaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes (1) contracts with an original expected length of one year or less and (2) contracts for which the company recognizes revenue at the amount to which it has the right to invoice for services performed. At September 30, 2020, the company had approximately $0.8 billion of remaining performance obligations of which approximately 13% is estimated to be recognized as revenue by the end of 2020 and an additional 37% by the end of 2021.