AYX Question

I was reading over the last c.c. to prepare for this coming earnings report. One thing that caught my attention just recently was brought up in the link that someone just posted on AYX. It concerns the transition to new accounting standards.

From the c.c.

Before we turn to guidance, I’d like to update you on our adoption of ASC 606. As we discussed with you last quarter, we will no longer qualify as an emerging growth company after December 31, 2018, and we’ll adopt the ASC 606 when we file our Form 10-K in early 2019. We continue to evaluate the potential impact of ASC 606 on our financial statements and have not yet reached a final determination. We expect to share more information with you when we have reached a final determination on what the expected impact may be. Consequently, the guidance we are providing you today is under ASC 605.

I do not remember this being discussed on the boards before or maybe it just did not catch my attention.
Doing some research on the internet I found this. https://www.accountingtoday.com/opinion/welcome-to-year-one-…

In 2014 the Financial Accounting Standards Board and the International Accounting Standards Board issued new standards — ASC 606 and IFRS 15 respectively — with new rules recognizing revenue across all industries around the globe. The goal was to simplify and harmonize revenue recognition practices globally, which is resulting in future revenue gain or loss when accounted for under the new guidelines.

What’s more, these new rules are particularly tricky for any company with recurring revenue. Companies with usage-based, “X-as-a-Service” subscriptions, or bundled revenue models like Box or Zendesk, must deal with deep complexity when accounting for revenue.

and this https://www.ipohub.org/asc-606-adoption-considerations/

One issue you should be aware of when adopting ASC 606 is that under certain circumstances you may “lose” revenue; the revenue will never be reported in your financial statements as revenue and will instead be recorded as an adjustment to retained earnings. This “loss” or acceleration of revenue occurs when ASC 606 accelerates the timing of revenue recognition for certain contracts that were not yet completed under ASC 605. In this scenario, the revenue presented in the adopting period will be less than it would have been if you were still following ASC 605.

In addition to the “lost” revenue discussed above, adopting ASC 606 can have many possible accounting impacts. The following is a list of potential impacts you may see as a result of adopting ASC 606:

–Contract acquisition costs, such as sales commissions, will now be capitalized and amortized over the contract period or customer life. Under ASC 605 contract costs were often-times immediately expensed.

–Contract revenue recognized using the completed contract method in many cases may be recognized earlier, as services are delivered.

–Loyalty points earned by loyalty program members will be valued using a relative selling price approach rather than an incremental cost method. Under the selling price approach, a portion of each sale related to loyalty points earned will be deferred and recognized as revenue when the points are redeemed.

–Revenue from the licensing of intellectual property categorized as symbolic IP will now be recognized over-time. Under ASC 605 this revenue was often recognized at the inception of the licensing contract.

–Revenue subject to guarantees may now be recognized when delivered, as opposed to being deferred under ASC 605. Adjustments in estimated profit will be recognized in the period they are identified (cumulative catch-up method), rather than recognizing the impact of an adjustment prospectively over the remaining contract term.

I am not sure what this all exactly means for AYX’s earning call. However I am hopeful that some on this board can help me in this understanding. I have a couple of thoughts after reading this:

Might have something to do with change in accounting firms that was previously announced.

Seems as if it also could have something to do with the delay in the report.

Additionally might this cause some confusion and “bad” headlines with robo trading causing a potential buying opportunity (rapid fall in price) after earnings. It might show a slowing of revenue due to the accounting standard change, with the revenue going to retained earnings. My gut feel is it is going to cloudy the waters and potentially make for a potential buying opportunity.

Honestly I am hoping someone can do a better job of explaining what this might possibly mean?



ASC 606 are new accounting rules being adopted by everyone. They define how revenue should be recognized (especially for SaaS/subscription businesses) and the company is reporting on how that will impact them. I didn’t see anything above that is worrisome, but others may disagree.



Here is a pretty good thread where it was discussed pretty thoroughly.

~ CrazieKids

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I agree that there should be nothing worrisome long term as all reporting entities migrate to the new accounting standard. The revenue results may be skewed and expected growth rates affected by the changes. Presumably the prior period comparatives will also be restated under the new standard such that a like-for-like growth rate is reported.

This whole SAAS revenue recognition issue sure does make a great case for adoption of Zuora’s products. I have recently taken a small try out position in ZUO

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I haven’t a clue how this will impact AYX’s next report. But, good lord, this represents a major accounting nightmare. Things like you can’t charge loyalty points until they’re used. How’s that supposed to work. They wouldn’t be points if they weren’t fungible. How are you supposed to determine they are being used. Is it like inventory, FIFO/LIFO, pick one and stay with it?

Seems like a bunch of accounts stayed up late, did some heavy drinking and came up with this torment.

This has inflated the rev by 20%. Our P/S has dropped I know materially it means nothing to the underlying business! Is SQ reporting per ASC 606 as well?