Lee L. and Melissa are both right. Having sold enterprise apps (including SFA) for several years, I can tell you that SEBL can recognize the full revenue for their deal in the current quarter as long the full product has shipped, there are no contract contingencies, and the payment is guaranteed and non-refundable. However, if payment terms allow for any portion of the deal to be paid outside of 12 months from date of contract, then that portion (in some cases more) can not be recognized until the cash is received. Maintenance revenue is always "rated" so that a portion is recognized each month as the services are delivered.
Software companies go through a lot of negotiating gymnastics with customers to ensure that there are no contingencies, no acceptance clauses, no extended terms to maximize the license revenue that they can recognize up front. With a strategic account, (like Microsoft) a software co. may decide to accept performance clauses in the contract, but otherwise they will "threaten" to walk away rather than accept terms that prevent them from booking the revenue right away.
At one point on this thread, it was mentioned that Tom Siebel talked about a massive backlog. I could never figure out the relevance of this (other than to decieve investors) since I am certain that they book close to 100% when the deals are signed, not when the seats are rolled into production.
Clarify used to have a policy of delaying the recognition of revenue until the software was actually installed on their customers' server, but they didn't wait until it was rolled into production. They probably relaxed this requirement once they ran into their difficulties a couple of years ago. While CLFY wsa ahead of their numbers and the policy was in place, it gave them a nice backlog going into the next quarter, enabling them to somewhat get out of the Back Loaded quarter syndrome.
Vantive used to close their quarters a week early for the same reason. The sales reps that brought in their deals at the end of the quarter would get their commissions delayed until the following quarter. They would delay shipment of product until early in the next quarter. Smart revenue and sales management IMO.
When some companies are going through high growth, they will sock away a nice backlog by delaying the shipment of the software until early in the next quarter. Well managed software companies do this to manage the street's expectations and buffer against disappointment. Most software companies don't have this luxury and book anything they can and are continually back loading their quarters. |
