| Revenue | 3. REVENUE Revenues are recognized when control of the promised goods or services is transferred to our clients in an amount that reflects the consideration we expect to be entitled to for those goods or services. Substantially all of our revenues are from contracts with clients. Sales taxes and other applicable taxes are excluded from revenues. Recurring Revenues Recurring revenues are derived primarily from our payroll, talent acquisition, talent management, HR management and time and labor management applications as well as fees charged for form filings and delivery of client payroll checks and reports. Payroll includes Beti®, Payroll and Tax Management, Vault, Everyday®, Paycom Pay®, Client Action Center, Expense Management, Mileage Tracker, Garnishment Administration and GL Concierge applications. Talent acquisition includes our Applicant Tracking, Candidate Tracker, Enhanced Background Checks®, Onboarding, E-Verify® and Tax Credits applications. Talent management includes our Employee Self-Service®, Compensation Budgeting, Performance Management, Position Management, My Analytics and Paycom Learning applications. HR management includes our Manager on-the-Go®, Direct Data Exchange®, Ask Here, Documents and Checklists, Government and Compliance, Benefits Administration/Benefits to Carrier, Benefit Enrollment Service, COBRA Administration, Personnel Action Forms and Performance Discussion Forms, Surveys, Enhanced ACA and Clue® applications. Time and labor management includes Time and Attendance, Scheduling, Time-Off Requests with GONE®, Labor Allocation, Labor Management Reports/Push Reporting®, Geofencing/Geotracking and Microfence tools and applications. In addition, with Global HCM, a number of our HCM applications and tools are available in 15 languages and dialects and are accessible to users in more than 180 countries. The performance obligations related to recurring revenues are generally satisfied during each client’s payroll period, with the agreed-upon fee being charged and collected as part of our processing of the client’s payroll. Recurring revenues are recognized at the conclusion of processing of each client’s payroll period, when each respective payroll client is billed. Collectability is reasonably assured as the fees are generally collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes the default risk. The contract period for substantially all contracts associated with these revenues is one month due to the fact that both we and the client typically have the unilateral right to terminate a wholly unperformed contract without compensating the other party by providing 30 days’ notice of termination. Our payroll application is the foundation of our solution, and all of our clients are required to utilize this application in order to access our other applications. For clients who purchase multiple applications, due to the short-term nature of our contracts, we do not believe it is meaningful to separately assess and identify whether or not each application potentially represents its own, individual, performance obligation as the revenue generated from each application is recognized within the same month as the revenue from the core payroll application. Similarly, we do not believe it is meaningful to individually determine the standalone selling price for each application. We consider the total price charged to a client in a given period to be indicative of the standalone selling price, as the total amount charged is within a reasonable range of prices typically charged for our goods and services for comparable classes of client groups, which we periodically assess for price adjustments. Interest income on funds held for clients is earned on funds that are collected from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services. The interest earned on these funds is included in recurring revenues in the consolidated statements of comprehensive income as the collection, holding, and remittance of these funds are essential components of providing these services. Implementation and Other Revenues Implementation and other revenues consist of nonrefundable upfront conversion fees, which are charged to new clients to offset the expense of new client set-up as well as revenues from the sale of time clocks as part of our Time and Attendance application. Although these revenues are related to our recurring revenues, they represent distinct performance obligations. Implementation activities primarily represent administrative activities that allow us to fulfill future performance obligations for our clients and do not represent services transferred to the client. However, the nonrefundable upfront fee charged to our clients results in an implied performance obligation in the form of a material right to the client related to the client’s option to renew at the end of each contract period. Further, given that all other services within the contract are sold at a total price indicative of the standalone selling price, coupled with the fact that the upfront fees are consistent with upfront fees charged in similar contracts that we have with clients, the standalone selling price of the client’s option to renew the contract approximates the dollar amount of the nonrefundable upfront fee. The nonrefundable upfront fee is typically collected upon contract inception and is deferred and recognized ratably over the estimated period of benefit ( i.e. , 10-year estimated client life). Revenues from the sale of time clocks are recognized when control is transferred to the client upon delivery of the product. We estimate the standalone selling price for the time clocks by maximizing the use of observable inputs such as our specific pricing practices for time clocks. Contract Balances The timing of revenue recognition for recurring services is consistent with the invoicing of clients as they both occur during the respective client payroll period for which the services are provided. Therefore, we generally do not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing. Changes in deferred revenue for the three and nine months ended September 30, 2024 and 2023 were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Balance, beginning of period $ 142,360 $ 124,233 $ 130,469 $ 117,416
Recognition of revenue included in beginning of period balance ( 11,583 ) ( 5,592 ) ( 27,626 ) ( 16,185 )
Contract balance, net of revenue recognized during the period 11,479 9,677 39,413 27,087
Balance, end of period $ 142,256 $ 128,318 $ 142,256 $ 128,318 We expect to recognize $ 9.0 million of deferred revenue in the remainder of 2024 , $ 24.7 million in 2025 , and $ 108.6 million thereafter . Assets Recognized from the Costs to Obtain and Costs to Fulfill Revenue Contracts We recognize an asset for the incremental costs of obtaining a contract with a client if we expect the amortization period to be longer than one year. We also recognize an asset for the costs to fulfill a contract with a client if such costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. We have determined that substantially all costs related to implementation activities are administrative in nature and also meet the capitalization criteria under ASC 340-40. These capitalized costs to fulfill principally relate to upfront direct costs that are expected to be recovered through margin and that enhance our ability to satisfy future performance obligations. The assets related to both costs to obtain, and costs to fulfill, contracts with clients are accounted for utilizing a portfolio approach and are capitalized and amortized ratably over the expected period of benefit, which we have determined to be the estimated life of the client relationship of 10 years. The expected period of benefit has been determined to be the estimated life of the client relationship primarily because we incur no new costs to obtain, or costs to fulfill, a contract upon renewal. Additional commission costs may be incurred when an existing client purchases additional applications; however, these commission costs relate solely to the additional applications purchased and are not related to contract renewal. Furthermore, additional fulfillment costs associated with existing clients purchasing additional applications are minimized by our seamless single-database platform. These assets are presented as deferred contract costs in the accompanying consolidated balance sheets. Amortization expense related to costs to obtain and costs to fulfill a contract is included in sales and marketing expenses and general and administrative expenses in the accompanying consolidated statements of comprehensive income. The following tables present the asset balances and related amortization expense for these contract costs:
As of and for the Three Months Ended September 30, 2024
Beginning Capitalization Ending
Balance of Costs Amortization Balance
Costs to obtain a contract $ 396,960 $ 27,188 $ ( 16,247 ) $ 407,901
Costs to fulfill a contract $ 459,724 $ 36,776 $ ( 16,841 ) $ 479,659
As of and for the Three Months Ended September 30, 2023
Beginning Capitalization Ending
Balance of Costs Amortization Balance
Costs to obtain a contract $ 350,486 $ 21,451 $ ( 13,901 ) $ 358,036
Costs to fulfill a contract $ 380,324 $ 32,680 $ ( 13,552 ) $ 399,452
As of and for the Nine Months Ended September 30, 2024
Beginning Capitalization Ending
Balance of Costs Amortization Balance
Costs to obtain a contract $ 378,467 $ 76,869 $ ( 47,435 ) $ 407,901
Costs to fulfill a contract $ 420,011 $ 107,665 $ ( 48,017 ) $ 479,659
As of and for the Nine Months Ended September 30, 2023
Beginning Capitalization Ending
Balance of Costs Amortization Balance
Costs to obtain a contract $ 325,457 $ 72,885 $ ( 40,306 ) $ 358,036
Costs to fulfill a contract $ 338,895 $ 98,842 $ ( 38,285 ) $ 399,452 |
