Enom 2014 Annual Report Download - page 74

F-10
Revenue Recognition
We recognize revenue when four basic criteria are met: persuasive evidence of a sales arrangement exists; performance of
services has occurred; the sales price is fixed or determinable; and collectability is reasonably assured. We consider persuasive
evidence of a sales arrangement to be the receipt of a signed contract. Collectability is assessed based on a number of factors,
including transaction history and the credit worthiness of a customer. If it is determined that collection is not reasonably assured,
revenue is not recognized until collection becomes reasonably assured, which is generally upon receipt of cash. We record cash
received in advance of revenue recognition as deferred revenue.
For arrangements with multiple deliverables, we allocate revenue to each deliverable if the delivered item(s) has value to the
customer on a standalone basis and, if the arrangement includes a general right of return relative to the delivered item, delivery or
performance of the undelivered item(s) is considered probable and substantially in our control. The fair value of the selling price for a
deliverable is determined using a hierarchy of (1) company-specific objective and reliable evidence, then (2) third-party evidence, then
(3) best estimate of selling price. We allocate any arrangement fee to each of the elements based on their relative selling prices.
Our revenue is principally derived from the following services and products:
Service Revenue
Content & Media
Advertising Revenue. We generate revenue from advertisements displayed alongside our content on our online properties and
certain of our customers’ online properties. Articles, videos and other forms of content generate advertising revenue from a diverse
mix of advertising methods including performance-based cost-per-click advertising, in which an advertiser pays only when a visitor
clicks on an advertisement; display advertisements, where revenue is dependent upon the number of advertising impressions
delivered; and sponsored content or advertising links. In determining whether an arrangement exists, we ensure that a binding
arrangement is in place, such as a standard insertion order or a fully executed customer-specific agreement. Obligations pursuant to
our advertising revenue arrangements typically include a minimum number of impressions or the satisfaction of other performance
criteria. Revenue from performance-based arrangements is recognized as the related performance criteria are met. We assess whether
performance criteria have been met and whether the fees are fixed or determinable based on a reconciliation of the performance
criteria and an analysis of the payment terms associated with the transaction. The reconciliation of the performance criteria generally
includes a comparison of third-party performance data to the contractual performance obligation and to internal or customer
performance data in circumstances where that data is available.
Where we enter into revenue-sharing arrangements with our customers, such as those relating to our advertiser network, and
when we are considered the primary obligor, we report the underlying revenue on a gross basis in our consolidated statements of
operations, and record these revenue-sharing payments to our customers in service costs.
Social Media Services. We configure, host, and maintain our platform social media services under private-labeled versions of
software for commercial customers. We earn revenue from our social media services through recurring management support fees,
overage fees in excess of standard usage terms, outside consulting fees and initial set-up fees. Due to the fact that social media
services customers have no contractual right to take possession of our private-labeled software, we account for our social media
services revenue as service arrangements. Social media services revenue is recognized when persuasive evidence of an arrangement
exists, delivery of the service has occurred and no significant obligations remain, the selling price is fixed or determinable, and
collectability is reasonably assured. During February 2015, we sold our Pluck social Media business. We received cash of $3.8 million
after purchase price adjustments.
Social media service arrangements may contain multiple deliverables, including, but not limited to, single arrangements
containing set-up fees, monthly support fees and overage billings, consulting services and advertising services. To the extent that
consulting services have value on a standalone basis, we allocate revenue to each element in the multiple deliverable arrangements
based upon their relative fair values. Fair value is determined based upon the best estimate of the selling price. To date, substantially
all consulting services entered into concurrently with the original social media service arrangements have not been treated as separate
deliverables because such services do not have value to the customer on a standalone basis. In such cases, the arrangement is treated as
a single unit of accounting with the arrangement fee recognized over the term of the arrangement on a straight-line basis. Outside
consulting services performed for customers that have value on a standalone basis are recognized as the services are performed. Any
set-up fees are recognized as revenue on a straight-line basis over the greater of the contractual or estimated customer life once
monthly recurring services have commenced. We determine the estimated customer life based on analysis of historical attrition rates,
average contractual term and renewal expectations. We review the estimated customer life at least quarterly and when events or
changes in circumstances occur, such as significant customer attrition relative to expected historical or projected future results.
Overage billings are recognized when delivered and at contractual rates in excess of standard usage terms.