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Revenue from Contracts with Customers | 12 Months Ended
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Sep. 30, 2019
Revenue from Contract with Customer [Abstract] |
Revenue from Contracts with Customers | Revenue from Contracts with Customers Upon adoption of ASC 606, we recorded a decrease in accumulated deficit of $432.2 million ($363.2 million, net of tax) due to the cumulative effect of the ASC 606 adoption, with the impact primarily derived from revenue related to on-premise subscription software licenses, net of tax due to the cumulative effect of the ASC 606 adoption, with an impact from revenue adjustments of $366.8 million primarily derived from acceleration of revenue related to on-premise subscription software licenses. The revenue related adjustment was reflected on the adjusted opening balance sheet as an increase to unbilled receivables of $218.5 million, decrease to deferred revenue of $143.2 million and an increase to other assets of $5.1 million. Contract Assets and Contract Liabilities
(in thousands) | As Reported |  | As Adjusted
| September 30, 2019 |  | October 1, 2018
Contract asset | $ | 21,038 |  |  | $ | 25,037 |
Deferred revenue | $ | 396,632 |  |  | $ | 356,263 |
As of September 30, 2019, our contract assets are expected to be transferred to receivables within the next 12 months and therefore are included in other current assets. Approximately $17.8 million of the October 1, 2018 contract asset balance was transferred to receivables during the year ended September 30, 2019 as a result of the right to payment becoming unconditional. The majority of both the contract asset balance and the amounts transferred to receivables relates to two large professional services contracts with invoicing terms based on performance milestones. Additions to contract assets of approximately $13.8 million related to revenue recognized in the period, net of billings. There were no impairments of contract assets during the year ended September 30, 2019. During the year ended September 30, 2019, $333.7 million of revenue that was included in the deferred revenue opening balance was recognized, respectively. There were additional deferrals of $374.1 million, which were primarily related to new billings. Adjusted opening balance of total short- and long-term receivables as of October 1, 2018 under ASC 606 was $503.7 million, compared to total short- and long-term receivables as of September 30, 2019 under ASC 606 of $412.5 million. Costs to Obtain or Fulfill a Contract The new revenue recognition standard requires the capitalization of certain incremental costs of obtaining a contract, which impacts the period in which we record our commission expense. Prior to our adoption of the new revenue standard, we recognized commissions expense as incurred. Under the new revenue recognition standard, we are required to recognize these expenses over the period of benefit associated with these costs. This results in a deferral of certain commission expenses each period. Upon adoption, we reduced our accumulated deficit by $70.0 million and recognized an offsetting asset for deferred commission related to contracts that were not completed prior to October 1, 2018. We recognize an asset for the incremental costs of obtaining a contract with a customer if the benefit of those costs is expected to be longer than one year. These deferred costs are amortized proportionately related to revenue over five years, which is generally longer than the term of the initial contract because of anticipated renewals as commissions for renewals are not commensurate with commissions related to our initial contracts. As of September 30, 2019, deferred costs of $27.7 million were included in other current assets and $64.8 million were included in other assets (non-current). As the revenue recognition pattern has changed under ASC 606, the recognition of costs to fulfill contracts has also changed to match this pattern of recognition. As of October 1, 2018, this resulted in a $2.8 million increase in our accumulated deficit with recognition of an offsetting current liability. Remaining Performance Obligations Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. The amounts include additional performance obligations that are not yet recorded in the consolidated balance sheets. As of September 30, 2019, amounts allocated to these additional contractual obligations are $1,021 million, of which we expect to recognize approximately 90% over the next 24 months, with the remaining amount thereafter. Disaggregation of Revenue
|  | Year Ended September 30,
|  | As Reported ASC 606 |  | ASC 605 |  | As Reported ASC 605 |  | As Reported ASC 605
Revenue (in thousands) |  | 2019 |  | 2019 |  | 2018 |  | 2017
Subscription license |  | $ | 253,698 |  |  |  |  |  |  |
Subscription support & cloud services |  | 348,452 |  |  |  |  |  |  |
Total subscription |  | 602,150 |  |  | $ | 667,597 |  |  | $ | 482,027 |  |  | $ | 279,246 |
Perpetual support |  | 415,248 |  |  | 411,030 |  |  | 496,826 |  |  | 574,680 |
Total recurring revenue |  | 1,017,398 |  |  | 1,078,627 |  |  | 978,853 |  |  | 853,926 |
Perpetual license |  | 70,702 |  |  | 72,191 |  |  | 109,634 |  |  | 133,390 |
Total software revenue |  | 1,088,100 |  |  | 1,150,818 |  |  | 1,088,487 |  |  | 987,316 |
Professional services |  | 167,531 |  |  | 160,676 |  |  | 153,337 |  |  | 176,723 |
Total revenue |  | $ | 1,255,631 |  |  | $ | 1,311,494 |  |  | $ | 1,241,824 |  |  | $ | 1,164,039 |
For further disaggregation of revenue by geographic region and product group see Note 18. Segment and Geographic Information. Transition Disclosures In accordance with the modified retrospective method transition requirements, we will present the financial statement line items impacted and adjusted to compare to presentation under ASC 605 for each of the interim and annual periods during the first year of adoption of ASC 606. Subsequent to the adoption of ASC 606 and the issuance of our unaudited Condensed Consolidated Financial Statements for the three-months ended December 29, 2018, six-months ended March 30, 2019 and nine-months ended June 29, 2019, PTC’s management identified errors in the application of ASC 606 for the calculation of the decrease in accumulated deficit upon adoption, as well as adoption balances for contract assets and deferred revenue as of October 1, 2018. The impact to our accumulated deficit was $0.3 million ($4.2 million, net of tax). The identified errors appeared only in the Notes to Condensed Consolidated Financial Statements and not in any of the individual Consolidated Financial Statements. Based on an analysis of the relevant quantitative and qualitative factors, we determined the impact was not material to any prior interim period. Therefore, management concluded that amendments of previously filed reports are not required. We corrected the errors as of the adoption date by revising the following amounts presented in the Notes to Condensed Consolidated Financial Statements: 1) contract assets as of October 1, 2018 has been changed from $26.2 million to $25.0 million; 2) deferred revenue as of October 1, 2018 has been changed from $357.5 million to $356.3 million; 3) the decrease in accumulated deficit has been changed from $431.9 million ($367.4 million, net of tax) to $432.2 million ($363.2 million, net of tax). The following tables present our Balance Sheets and Statements of Operations as reported under ASC 606 for the current period with comparative periods reported under ASC 605:
(in thousands) | September 30,
| As Reported ASC 606 |  | ASC 605 |  | As Reported ASC 605
| 2019 |  | 2019 |  | 2018
ASSETS |  |  |  |  |
Current assets: |  |  |  |  |
Cash and cash equivalents | $ | 269,579 |  |  | $ | 269,579 |  |  | $ | 259,946 |
Short-term marketable securities | 27,891 |  |  | 27,891 |  |  | 25,836 |
Accounts receivable (1) | 372,743 |  |  | 107,921 |  |  | 129,297 |
Prepaid expenses | 52,701 |  |  | 54,384 |  |  | 48,997 |
Other current assets (2) | 59,707 |  |  | 199,513 |  |  | 169,708 |
Total current assets | 782,621 |  |  | 659,288 |  |  | 633,784 |
Property and equipment, net | 105,531 |  |  | 105,531 |  |  | 80,613 |
Goodwill | 1,238,179 |  |  | 1,238,179 |  |  | 1,182,457 |
Acquired intangible assets, net | 169,949 |  |  | 169,949 |  |  | 200,202 |
Long-term marketable securities | 29,544 |  |  | 29,544 |  |  | 30,115 |
Deferred tax assets (3) | 198,634 |  |  | 233,026 |  |  | 165,566 |
Other assets (4) | 140,130 |  |  | 36,391 |  |  | 36,285 |
Total assets | $ | 2,664,588 |  |  | $ | 2,471,908 |  |  | $ | 2,329,022 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |
Current liabilities: |  |  |  |  |
Accounts payable | $ | 42,442 |  |  | $ | 42,442 |  |  | $ | 53,473 |
Accrued expenses and other current liabilities (5) | 104,028 |  |  | 78,007 |  |  | 74,388 |
Accrued compensation and benefits | 88,769 |  |  | 88,769 |  |  | 101,784 |
Accrued income taxes (3) | 17,407 |  |  | 21,336 |  |  | 18,044 |
Deferred revenue (6) | 385,509 |  |  | 569,171 |  |  | 487,590 |
Total current liabilities | 638,155 |  |  | 799,725 |  |  | 735,279 |
Long-term debt | 669,134 |  |  | 669,134 |  |  | 643,268 |
Deferred tax liabilities (3) | 41,683 |  |  | 14,644 |  |  | 5,589 |
Deferred revenue (6) | 11,123 |  |  | 9,577 |  |  | 11,852 |
Other liabilities | 102,495 |  |  | 102,495 |  |  | 58,445 |
Total liabilities | 1,462,590 |  |  | 1,595,575 |  |  | 1,454,433 |
Stockholders’ equity: |  |  |  |  |
Preferred stock | — |  |  | — |  |  | — |
Common stock | 1,149 |  |  | 1,149 |  |  | 1,180 |
Additional paid-in capital | 1,502,949 |  |  | 1,502,949 |  |  | 1,558,403 |
Accumulated deficit | (191,390 | ) |  | (524,169 | ) |  | (599,409 | )
Accumulated other comprehensive loss | (110,710 | ) |  | (103,596 | ) |  | (85,585 | )
Total stockholders’ equity | 1,201,998 |  |  | 876,333 |  |  | 874,589 |
Total liabilities and stockholders’ equity | $ | 2,664,588 |  |  | $ | 2,471,908 |  |  | $ | 2,329,022 |
The changes in balance sheet accounts due to the adoption of ASC 606 are due primarily to the following:
(1) | Up front license recognition under our subscription contracts and billed but uncollected support and subscription receivables that had corresponding deferred revenue, which were included in other current assets prior to our adoption of ASC 606.
(2) | Support and subscription receivables previously included in other current assets described in note (1) above, offset by contract assets and capitalized commission costs. Under ASC 605, unearned billed deferred revenue, which is not yet paid is included in other current assets. Billed, but uncollected support and subscription amounts included in other current assets as of September 30, 2019 and 2018 were $185.7 million and $153.6 million, respectively.
(3) | The tax effect of the accumulated deficit impact related to the acceleration of revenue and deferral of costs (primarily commissions).
(4) | The long-term portion of unbilled receivables due to the acceleration of license revenue on multi-year subscription contracts and the long-term portion of capitalized commission costs.
(5) Refund liability, primarily associated with the annual right to exchange on-premise subscription software described above in Judgments and Estimates. (6) The decrease in deferred revenue recorded to accumulated deficit upon adoption of ASC 606 primarily related to on-premise subscription software licenses.
(in thousands) | September 30,
| As Reported ASC 606 |  | ASC 605 |  | As Reported ASC 605 |  | As Reported ASC 605
| 2019 |  | 2019 |  | 2018 |  | 2017
Revenue: |  |  |  |  |  |  |
License (1) | $ | 324,400 |  |  | $ | 666,770 |  |  | $ | 529,265 |  |  | $ | 356,326 |
Support and cloud services (1) | 763,700 |  |  | 484,048 |  |  | 559,222 |  |  | 630,990 |
Total software revenue | 1,088,100 |  |  | 1,150,818 |  |  | 1,088,487 |  |  | 987,316 |
Professional services | 167,531 |  |  | 160,676 |  |  | 153,337 |  |  | 176,723 |
Total revenue | 1,255,631 |  |  | 1,311,494 |  |  | 1,241,824 |  |  | 1,164,039 |
Cost of revenue: |  |  |  |  |  |  |
Cost of license revenue | 51,936 |  |  | 50,231 |  |  | 47,737 |  |  | 66,841 |
Cost of support and cloud services revenue | 133,478 |  |  | 132,987 |  |  | 135,106 |  |  | 110,931 |
Total cost of software revenue | 185,414 |  |  | 183,218 |  |  | 182,843 |  |  | 177,772 |
Cost of professional service revenue | 139,964 |  |  | 134,936 |  |  | 143,659 |  |  | 150,730 |
Total cost of revenue: (2) | 325,378 |  |  | 318,154 |  |  | 326,502 |  |  | 328,502 |
Gross margin | 930,253 |  |  | 993,340 |  |  | 915,322 |  |  | 835,537 |
Operating expenses: |  |  |  |  |  |  |
Sales and marketing (3) | 417,449 |  |  | 441,958 |  |  | 414,764 |  |  | 372,702 |
Research and development | 246,888 |  |  | 246,888 |  |  | 249,786 |  |  | 236,028 |
General and administrative | 127,919 |  |  | 127,919 |  |  | 143,045 |  |  | 144,991 |
Amortization of acquired intangible assets | 23,841 |  |  | 23,841 |  |  | 31,350 |  |  | 32,108 |
Restructuring and other charges, net | 51,114 |  |  | 51,114 |  |  | 3,764 |  |  | 7,942 |
Total operating expenses | 867,211 |  |  | 891,720 |  |  | 842,709 |  |  | 793,771 |
Operating income | 63,042 |  |  | 101,620 |  |  | 72,613 |  |  | 41,766 |
Interest expense | (43,047 | ) |  | (43,047 | ) |  | (41,673 | ) |  | (42,400 | )
Other income (expense), net | 305 |  |  | 131 |  |  | (2,284 | ) |  | (772 | )
Income before income taxes | 20,300 |  |  | 58,704 |  |  | 28,656 |  |  | (1,406 | )
Provision (benefit) for income taxes (4) | 47,760 |  |  | 55,725 |  |  | (23,331 | ) |  | (7,645 | )
Net income (loss) | $ | (27,460 | ) |  | $ | 2,979 |  |  | $ | 51,987 |  |  | $ | 6,239 |
(1) | The reduction in license revenue and increase in support revenue is a result of the support component of subscription licenses which is included in license revenue under ASC 605. For the year ended September 30, 2019, license revenue decreased by approximately $215.0 million as a result of the revenue recorded to accumulated deficit. This was partially offset by approximately $153.5 million as a result of revenue recognized in future fiscal periods.
(2) Cost of revenue under ASC 606 is higher than under ASC 605 due to the treatment of deferred professional services costs under the new accounting guidance, partially offset by the timing of revenue recognition under ASC 606 resulting in lower associated royalty costs. (3) Sales and marketing costs are lower under ASC 606 due to the amortization of commissions costs capitalized upon adoption of ASC 606, offset by the deferral of ongoing commission expenses under the new accounting guidance. (4) The benefit for income taxes under ASC 606 includes indirect effects of the adoption.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 + Details
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