Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2023

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 16, 2023, as amended by its subsequent Form 10-K/A, Amendment No. 1, filed with the SEC on April 28, 2023 (collectively, "Annual Report on Form 10-K, as amended").

The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2023 or for any other period.

There have been no significant changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K, as amended, that have had a material impact on its condensed consolidated financial statements and related notes.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Such management estimates include, but are not limited to, revenue recognition, collectability of accounts receivable, useful lives of intangible assets, estimates related to recoverability of long-lived assets and goodwill, stock-based compensation, legal contingencies, deferred income taxes and associated valuation allowances and distribution fee commitments. These estimates generally require judgments, may involve the analysis of historical trends and prediction of future trends, and are subject to change from period to period. Actual results may differ from the Company’s estimates, and such differences may be material to the accompanying condensed consolidated financial statements.

Revenue Recognition

The Company primarily generates revenue by providing digital promotions and media solutions to its customers, which consist of advertisers, retail partners and advertising agencies, whereby it uses its proprietary technology platforms to create, target, deliver and analyze these solutions.

Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, and collectability of an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services is probable.

The Company determines revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, the Company satisfies a performance obligation

Digital Promotions

The Company's digital promotions solutions include its national promotions offering which is non-retailer specific, and its shopper promotions offering which is retail specific. The Company's digital promotions are generally sold on a cost-per-click basis or based on duration (i.e., Duration-Based National Promotions Solution or Duration-Based Shopper Promotions Solution). For a cost-per-click offering, a click refers to the consumer's action of activating a digital promotion through the Company’s proprietary technology platforms by either saving it to a retailer’s loyalty account for automatic digital redemption, or printing it for physical redemption at a retailer. Beginning the first quarter of 2021, the Company introduced its Duration-Based National Promotions Solution, and beginning the first quarter of 2022, the Company introduced its Duration-Based Shopper Promotions Solution. These duration-based offerings provide advertisers access to the Company's proprietary platforms for a specific period of time (i.e., the campaign period) in exchange for a fixed fee. The campaign period in duration-based offerings is generally between seven and twenty-eight days.

The pricing of digital promotions programs typically includes both promotion setup fees and promotion campaign fees. Promotion setup fees are related to the creation of digital promotions and set up of the underlying campaign on Quotient’s proprietary platforms.

Through the third quarter of 2022, the Company determined that setup activities, along with the related digital promotion campaigns, represented a single combined performance obligation because the customer could not benefit from the promotion setup services either on their own or with resources that were readily available to the customer. Accordingly, revenue related to cost-per-click agreements were typically recognized as clicks occurred and revenue related to duration-based campaigns, which provide the customer access to the Company’s proprietary technology platforms each day during the campaign period, were typically recognized ratably over the campaign period.

Beginning the fourth quarter of 2022, because of technological enhancements in the Company's proprietary technology, customers and third parties can benefit from the promotion setup services with readily available resources. More specifically, the Company's proprietary technology now supports independent setup services that can be performed by customers or third parties. As a result, the Company determined that its digital promotion offerings include multiple performance obligations, including the promotion setup services and related digital promotion campaigns. Beginning the fourth quarter of 2022, revenue from promotion setup services for both cost-per-click and duration-based campaigns are recognized as the services are performed. Revenue from digital promotion campaigns is recognized as clicks occur for cost-per-click agreements, and ratably over the campaign period for duration-based campaigns.

Digital Media

Digital media solutions are comprised of national media offerings, shopper media offerings, DOOH offerings and sponsored search offerings. The Company's media offerings enable advertisers and retailers to distribute digital media to promote their brands and products on its retailers' websites, and mobile applications, and through open exchange inventory sources that display its media offerings, including on websites, mobile applications, or digital screens. Pricing for media campaigns is usually determined on a cost-per-impression, cost-per-click or cost-per-acquisition basis. The Company recognizes revenue each time a digital media advertisement is displayed or each time a user clicks on the digital media advertisement displayed on the Company's websites, mobile applications or on third-party websites.

Gross Versus Net Revenue Reporting

In the normal course of business, the Company delivers digital promotions and media on retailers’ websites and mobile applications through retailers’ loyalty programs, and on the websites of digital publishers. In these situations, the Company evaluates whether it is the principal (i.e., reports revenues on a gross basis) or agent (i.e., reports revenues on a net basis).

In the case of national promotions and media offerings, the Company has determined that it is the principal in these arrangements as the Company controls the digital promotion and media advertising inventory before it is transferred to its customers. The Company’s control is evidenced by its sole ability to monetize the digital coupon and media advertising inventory, being primarily responsible to its customers, having discretion in establishing pricing for the delivery of the digital coupons and media, or a combination of these. Under these arrangements, the

Company reports revenue on a gross basis, that is, the amounts billed to its customers are recorded as revenues, and distribution fees paid to retailers or digital publishers are recorded as cost of revenues.

With regards to non-duration based shopper promotions and media campaign offerings, the Company has determined that it is an agent in these arrangements as the Company does not control these shopper promotions and media programs or sets the pricing. The Company’s obligation in these arrangements is to provide the use of its proprietary technology platforms to the customers. The retailer determines how shopper promotions and media programs are executed through the Company’s proprietary technology platforms. Under these arrangements, the Company reports revenue on a net basis, that is, the costs for digital advertising inventory are deducted from gross revenues to arrive at net revenues.

With regards to duration-based shopper promotions, the Company has determined that it is the principal because it has discretion in establishing pricing for the delivery of digital coupons. Under these arrangements, the Company reports revenue on a gross basis.

In the case of DOOH and sponsored search, the Company has determined that it is typically an agent in these arrangements because it generally does not have control of the digital advertising inventory before it is transferred to the customer and does not set prices. The Company’s obligation is to provide the use of its proprietary technology platforms that enables customers to bid on real-time digital advertising inventory, use of data and other add-on features in designing and executing their campaigns. The Company charges its customers a platform fee based on a percentage of the price paid by the purchaser of the related digital advertising inventory. Accordingly, the Company generally reports revenue on a net basis for the platform fees charged to customers.

Arrangements with Multiple Performance Obligations

The Company’s contracts with customers may include multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines its best estimate of its standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts and characteristics of targeted customers.

Deferred Revenues

Deferred revenues primarily relate to cash received or billings to customers associated with promotion setup fees, promotion campaign fees and digital media fees that are expected to be recognized upon click, delivery of media impressions, or campaign duration, which generally occur within the succeeding twelve months. The Company records deferred revenues, when cash payments are received or become due in advance of the Company satisfying its performance obligations. The increase in the deferred revenue balance for the six months ended June 30, 2023 is primarily driven by cash payments of $18.0 million received or due in advance of satisfying our performance obligations, partially offset by $13.5 million of recognized revenue.

The Company’s payment terms vary by the type and size of its customers. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.

Disaggregated Revenue

The following table presents the Company’s revenues disaggregated by type of services (in thousands, unaudited). The majority of the Company’s revenue is generated from sales within the United States.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Promotion	$	49,082	$	42,605	$	96,288	$	92,767
Media	16,624		26,646		28,685		54,940
Total Revenue	$	65,706	$	69,251	$	124,973	$	147,707

Practical Expedients and Exemptions

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue for an amount where it has the right to invoice for services performed.

Sales Commissions

The Company generally incurs and expenses sales commissions upon recognition of revenue for related goods and services, which typically occurs within one year or less. Sales commissions earned related to revenues for initial contracts are commensurate with sales commissions related to renewal contracts. These costs are recorded in sales and marketing expenses within the condensed consolidated statements of operations.

Quotient Technology Inc. 10-Q