Contract Assets and Deferred Revenue

3 Months Ended

Mar. 31, 2022

Revenue from Contract with Customer [Abstract]

Contract Assets and Deferred Revenue

Contract Assets and Deferred Revenue

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. Deferred revenue represents contract liabilities.

Net contract assets (liabilities) are as follows:

	March 31, 2022		December 31, 2021
Contract assets - current	$	39.9	$	42.0
Contract assets - long-term(i)	16.8		17.4
Deferred revenue - current	(238.9)		(253.2)
Deferred revenue - long-term	(142.2)		(150.7)

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

Significant changes in the above contract liability balances were as follows:

	Three Months Ended March 31,
	2022		2021
Revenue recognized that was included in deferred revenue at the beginning of the period	$	82.9	$	99.1

Capitalized Contract CostsThe 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 March 31, 2022 and December 31, 2021, the company had $5.7 million and $6.7 million, respectively, of deferred commissions.

Amortization expense related to deferred commissions was as follows:

	Three Months Ended March 31,
	2022		2021
Deferred commissions - amortization expense(i)	$	1.1	$	0.8

(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 March 31, 2022 and December 31, 2021 was $49.3 million and $56.2 million, respectively. These costs are amortized over the initial contract life and reported in cost of revenue.

Amortization expense related to costs to fulfill a contract was as follows:

	Three Months Ended March 31,
	2022		2021
Costs to fulfill a contract - amortization expense	$	8.9	$	5.9

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 March 31, 2022, the company had approximately $0.7 billion of remaining performance obligations of which approximately 28% is estimated to be recognized as revenue by the end of 2022 and an additional 33% by the end of 2023.