Revenue from Contracts with Customers Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is recognized net of sales taxes collected from customers, which are subsequently remitted to governmental authorities. The Company’s revenue is generated from the following sources: • Software-as-a-service (“SaaS”) related- SaaS related revenue is generated from customers’ access to and usage of the Company’s hosted software solutions on a subscription basis for a specified contract term. In SaaS arrangements, the customer cannot take possession of the software during the term of the contract and generally has the right to access and use the software and receive any software upgrades published during the subscription period. SaaS contracts are accounted for as a single performance obligation, as implementation and hosting services are not distinct. As a result, the Company recognizes all fees, including any up front initial system implementation service fees, or other fees, ratably over time from when the system implementation or deployment services are completed, and where necessary accepted by the customer, over the contract term, as stated, or with consideration of termination for convenience clauses as discussed below. • Maintenance - Maintenance revenue includes technical support and maintenance on OpenNMS software during the contract term. Revenue is recognized over the maintenance or support term. The Company’s networking monitoring solutions typically consist of a term-based subscription to the OpenNMS software license and maintenance, which entitle customers to unspecified software updates and upgrades on a when-and-if-available basis. The Company has determined that its promises to transfer the software license and the related maintenance are not separately identifiable because the licensed software and the software updates and upgrades are highly interdependent and highly interrelated, working together to deliver a continuously updated networking monitoring solution. The Company therefore considers the software license and related maintenance obligations to represent a single, combined performance obligation with revenue recognized over the subscription period. • Professional services- Professional services revenue is generated from consulting services to help customers install, integrate and optimize OpenNMS, sponsored development, and training to assist customers deploy and use OpenNMS solutions. Sponsored development relates to professional services to build customer specific functionality, features, and enhancements into the OpenNMS open source platform. Revenue is recognized over time for most of the Company's contracts as performance obligations are satisfied, as the Company is continuously transferring control to the customer. Typically, revenue is recognized over time using direct labor hours as a measure of progress. If any significant obligations to the customer remain postdelivery, typically involving obligations relating to acceptance by the customer, revenue recognition is deferred until such obligations have been fulfilled. Customers are generally billed as the Company satisfies its performance obligations. Billings under certain fixed-price contracts may be based upon the achievement of specified milestones. Management assesses whether contracts entered into at, or near, the same time, should be combined, based on evaluation of the commercial objectives of the contracts. Certain of the Company’s customer contracts allow for termination for convenience, with advanced notice, without substantive termination penalty. In these cases, the Company has concluded the contract term is equal to the remaining noncancelable period. Such termination rights do not allow for refunds other than prepaid services. These provisions do not affect when the Company commences revenue recognition. Contracts with Multiple Promises for Goods and Services The Company engages in various contracts with promises for multiple goods and services, which may generate revenue across any of the sources noted above. NantHealth, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) - 104 -
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