SaaS Brief

Managing Subscription Revenue Recognition through Uncertainty

Sage Intacct’s virtual Modern SaaS Finance Summit gathered a panel of experts to share their key insights on subscription revenue recognition, especially in light of rapid business changes like we face today from the COVID-19 pandemic. This dynamic group talked about how to manage revenue recognition with a broader cross-functional team. Successful collaboration is more important than ever while we all work remotely. Access the full video and register for other summit sessions here.

David Appel, Head of Software and SaaS at Sage Intacct, moderated the panel with:

  • Tony Sondhi, C. Sondhi & Associates - a former member of the FASB Emerging Issues Task Force (EITF) who advises companies on the practical application of financial reporting
  • Grant Christianson, Controller, Code 42 - leads the finance team and the company’s ASC 606 implementation
  • Lisa Schulz, VP & Corporate Controller, Jobvite - focuses on accounting, finance, and implementing new standards
  • Adam Buchholz, VP & Corporate Controller, Workiva - leads the finance function and software implementations, including expense software tools

Here are highlights from the session and three tips they shared:

Tip #1 – Stay agile during the pandemic by working as one team across departments

Revenue recognition affects everyone—whether it’s through opportunities and CPQ for sales and  sales operations, pricing and billing for revenue operations, or other key business drivers. Given the current climate, it’s time to identify the revenue you can count on and how your billing model impacts that revenue. Adam Buchholz shared his experiences about Workiva’s transition to a value-based business model:

I've been at Workiva for about 10 years now and been using Sage Intacct ever since . . . [with the new revenue model] it became how do we price and package that? How do we make sure sales has what they need? How do we ensure the customer understands what they're getting. . . and then from an accounting perspective setting those processes up so that we can recognize and account for it appropriately. As a cross-departmental team, [we] got together and said, ‘how do we want this to look’. . . and didn't just make blind decisions without all the different people in the room.

Tip #2 – Reconsider your assumptions and evaluate each customer or cohort

Be as flexible as possible in your customer engagements, anticipate how the pandemic will impact them, and then how to book, bill, and recognize it for the best business outcome. Tony Sondhi recommended that you reconsider revenue and forecasting in the current climate:

The uncertainty is certainly there and . . . a lot of turmoil [too]. So, you have to be very careful with collections . . . . because whatever you thought about collectability two weeks ago is likely to be different in the next few weeks. For forecasting purposes . . . the accruals are actually better data to use than the actual cash collections. Accruals do a better job of forecasting [and] cash collections can be affected by a lot of practical issues . . . . [The] other thing is that you're going to have to monitor whether certain kinds of assets are impaired and how that uncertainty is going to affect things.

Tip #3 – Get a complete view of your business’s finances right now

One place to start is with your contracts and performance obligations. Look at your customers’ billings and payment schedules. Work with your sales operations and legal teams to review the big picture. Consider adjusting terms for your customers who need your assistance. And get an understanding of the related impact on your revenue recognition. Lisa Schulz shared the key data points she’s using to adjust in the era of COVID-19:

A focus right now, given that there's a lot of uncertainty, is [to generate] different scenarios to see where we can be in the next three, six, nine-plus months. I feel grateful that we have a lot of this data from Sage that gives us the customer-related information. I'm able to show where our existing customer base could be—worst-case scenario . . . . We know what our churn rates are. . . .[We can] model different DSO on cash collections and also providing different growth rate scenarios based on historical information. We have a lot of the foundation in place to help support the decisions. So, we are very quickly working on what all of that will look like so we can give it to our investors and put the leadership team in a good spot.

Grant Christianson also talked about reporting and forecasting to guide his company through decision-making now:

We've built a lot of reporting around customers and contracts, and we can specifically now see revenue by customer and by contract. And it's quite easy to provide that information to FP&A when they're forecasting or budgeting for the upcoming cycle. Producing that and then getting more insights to sales on billing schedules and cash collections. It’s a realm of different opportunities now that we have better insight. It's certainly helpful to guide people in both what the standards are, what we know is happening right now. And then figure out [impacts] in the pipeline.

Tip #4 – Keep learning and adjusting in this fluid environment

Business is changing rapidly. We’re dealing with our competitors’ moves, investor reviews, and the CARES Act, just to name a few things. Grant shared his experiences at Code 42, a leading software and security company:

We've been on Sage Intacct from 2013, and we just recently went through the 606 implementation . . . . We sell annual subscriptions, and we usually bill annually. Sometimes we have multi-year deals. But the one big difference for us, and it was a game-changer, was we sell on-prem term licenses and, of course under 606, that’s now upfront revenue . . . . We had to figure out how to recognize that revenue in the system and properly bill it . . . .[We] try to really understand how we built and sold and deployed that product, which then worked into our white papers and the revenue recognition. So that continues today.

Lisa echoed those thoughts on ASC 606 and shared how she adapts as Jobvite evolves:

We went through a lot of changes even in the last year and a half with having been acquired and then acquiring three companies to roll under us. I had started looking at 606 probably over two years ago now and had come up with a plan that we had to adjust. As the business needs adjusting, whether you're looking at changing your pricing model, or now we're onboarding these new companies and having to look at their various products, . . . we may need to do things differently or conform them to how we’re doing things.

This is just an excerpt from this great talk. The full session includes proactive strategies to manage this challenging business landscape. Click here for the video and to register for the Summit.

 

 

image-3

 

Back to Blog Home

Recent Posts