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Recent Accounting Pronouncements
 9 Months Ended 12 Months Ended
Sep. 30, 2020
Dec. 31, 2019
Recent Accounting Pronouncements    
Recent Accounting Pronouncements

Note 2: Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018‑15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018‑15 is effective for the Company for the annual reporting period beginning after December 15, 2020, and interim periods beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the accounting, transition, and disclosure requirements of the standard and its impact on the Company’s consolidated results of operations and financial position.

In January 2017, the FASB issued ASU No. 2017‑04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be calculated as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU is effective for the Company for the interim and annual reporting periods beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company does not believe that this ASU will have a material impact on the Company’s consolidated results of operations and financial position.

Recently Adopted Accounting Guidance

In February 2016, the FASB issued ASU No. 2016‑02 regarding ASC Topic 842, Leases (“Topic 842”). This ASU requires balance sheet recognition of lease assets and lease liabilities by lessees for leases classified as operating leases, with an optional policy election to not recognize lease assets and lease liabilities for leases with a term of 12 months or less. The amendments also require new disclosures, including qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. Subsequent to the issuance of ASU 2016‑02, the FASB issued ASU Nos. 2018‑01, Land Easement Practical Expedient for Transition to Topic 842, 2018‑10, Codification Improvements to Topic 842, Leases, 2018‑11, Leases (Topic 842): Targeted Improvements, and 2018‑20, Narrow-Scope Improvements for Lessors. These ASUs do not change the core principle of the guidance in Topic 842. Instead, these amendments are intended to clarify and improve operability of certain topics included within the lease standard.

The Company adopted Topic 842 as of January 1, 2020 using the modified retrospective method for all existing leases. Upon adoption, the Company recognized its lease assets and lease liabilities measured at the present value of all future fixed lease payments, discounted using the Company’s incremental borrowing rate.

The Company elected the package of practical expedients as permitted under the transition guidance, which allows the Company: (1) to not reassess whether any existing contracts are leases or contain a lease; (2) to not reassess the lease classification of existing leases; and (3) to not reassess treatment of initial direct costs for existing leases. Additionally, the Company elected the practical expedients to combine lease and non-lease components for new leases post adoption and to not recognize lease assets and lease liabilities for leases with a term of 12 months or less.

Upon adoption of Topic 842, the Company recognized right-of-use assets of $45,850 and lease liabilities of $47,666 calculated based on the present value of the remaining minimum lease payments as of the adoption date. Topic 842 did not have a material impact to the Company’s consolidated statement of operations (see Note 8).

In June 2016, the FASB issued ASU No. 2016‑13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 326”).  Previous guidance required the allowance for doubtful accounts to be estimated based on an incurred loss model, which considers past and current conditions. Topic 326 requires companies to use an expected loss model that also considers reasonable and supportable forecasts of future conditions. Additionally, Topic 326 requires the allowance for doubtful accounts balance (contra‑asset) to be presented separately in the consolidated balance sheets. Topic 326 is effective for the Company for the annual period beginning after December 15, 2020, including interim periods within that annual period. The Company adopted Topic 326 as of January 1, 2020 using the modified retrospective method of adoption. The adoption of the standard did not have a material impact on the Company’s consolidated results of operations and financial position.

In August 2018, the FASB issued ASU No. 2018‑13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018‑13”). ASU 2018‑13 modifies certain required disclosures and establishes new requirements related to fair value measurement. Additionally, the disclosure requirement to state the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. ASU 2018‑13 is effective for the Company for the annual period beginning after December 15, 2019, including interim periods within that annual period. The Company adopted the ASU effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations and financial position.

In December 2019, the FASB issued ASU No. 2019‑12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019‑12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019‑12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. ASU 2019‑12 is effective for the Company for the annual period beginning after December 15, 2021, including interim periods within that annual period. The Company adopted the ASU effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations and financial position.

Note 2: Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018‑15, Intangibles—Goodwill and Other—Internal‑Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018‑15 is effective for the Company for the annual reporting period beginning after December 15, 2020, and interim periods beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the accounting, transition, and disclosure requirements of the standard and its impact on the Company’s consolidated results of operations and financial position.

In August 2018, the FASB issued ASU No. 2018‑13, Fair Value Measurement (Topic 820): Disclosure Framework‑Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018‑13 modifies certain required disclosures and establishes new requirements related to fair value measurement. Additionally, the disclosure requirement to state the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. The ASU is effective for the Company for the annual period beginning after December 15, 2019, including interim periods within that annual period. Early adoption is permitted. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated results of operations and financial position.

In January 2017, the FASB issued ASU No. 2017‑04, Intangibles‑Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be calculated as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU is effective for the Company for the interim and annual reporting periods beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company does not believe that this ASU will have a material impact on the Company’s consolidated results of operations and financial position.

In June 2016, the FASB issued ASU No. 2016‑13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Current guidance requires the allowance for doubtful accounts to be estimated based on an incurred loss model, which considers past and current conditions. ASU 2016‑13 requires companies to use an expected loss model that also considers reasonable and supportable forecasts of future conditions. ASU 2016‑13 is effective for the Company for the annual period beginning after December 15, 2020, including interim periods within that annual period. Early adoption is permitted. The Company plans to adopt ASU 2016‑13 as of January 1, 2020 and does not believe the adoption of this guidance will have a material impact on the Company’s consolidated results of operations and financial position.

In February 2016, the FASB issued ASU No. 2016‑02 regarding ASC Topic 842, Leases (“Topic 842”). This ASU requires balance sheet recognition of lease assets and lease liabilities by lessees for leases classified as operating leases, with an optional policy election to not recognize lease assets and lease liabilities for leases with a term of 12 months or less. The amendments also require new disclosures, including qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The new standard is effective for the Company for the fiscal year beginning after December 15, 2020, including interim periods within the fiscal year beginning after December 15, 2020. Early adoption is permitted. Subsequent to the issuance of ASU 2016‑02, the FASB issued ASU Nos. 2018‑01, Land Easement Practical Expedient for Transition to Topic 842, 2018‑10, Codification Improvements to Topic 842,  Leases, 2018‑11, Leases (Topic 842): Targeted Improvements, and 2018‑20, Narrow‑Scope Improvements for Lessors. These ASUs do not change the core principle of the guidance in ASU 2016‑02. Instead, these amendments are intended to clarify and improve operability of certain topics included within the lease standard. These ASUs will have the same effective date and transition requirements as ASU 2016‑02.

The Company will adopt Topic 842 as of January 1, 2020 using the modified retrospective method for all existing leases. Upon adoption, the Company is required to recognize its lease assets and its lease liabilities measured by taking the present value of all future fixed lease payments discounted using the Company’s incremental borrowing rate.

The Company has elected to opt for the package of practical expedients and to not reassess whether any existing contracts are leases or contain a lease, the lease classification of existing leases, and initial direct costs for existing leases. Additionally, the Company has elected the practical expedients to combine lease and non‑lease components for new leases post adoption and to not recognize lease assets and lease liabilities for leases with a term of 12 months or less.

The adoption of Topic 842 will materially increase the Company’s total assets and total liabilities as compared to amounts reported prior to adoption. Upon adoption, the Company expects to recognize right of use assets of approximately $46,000 and lease liabilities of approximately $48,000 calculated based on the present value of the remaining minimum lease payments as of the adoption date. Topic 842 is not expected to have a material impact to the Company’s consolidated statement of operations.

Recently Adopted Accounting Guidance

ASU 2016‑15—In August 2016, the FASB issued ASU No. 2016‑15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016‑15 addresses eight specific cash flow issues with the objective of reducing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted the standard effective January 1, 2019. The adoption of this ASU did not have a material impact on the Company’s consolidated statements of cash flows.

ASU 2016‑16—In October 2016, the FASB issued ASU No. 2016‑16, Income Taxes (Topic 740): Intra‑Entity Transfer of Assets Other than Inventory, which requires the recognition of the income tax effects of an intra‑entity transfer of an asset, other than inventory, when the transfer occurs, eliminating an exception under previous U.S. GAAP in which the tax effects of intra‑entity asset transfers were deferred until the transferred asset is sold to a third party or otherwise recovered through use. The Company adopted this standard effective January 1, 2018 by applying the required modified retrospective approach with a cumulative‑effect adjustment to retained earnings of certain previously deferred tax benefits. Accordingly, a cumulative‑effect adjustment on deferred tax expense of $379 was recorded in Accumulated deficit during the year ended December 31, 2018.

During 2018, the Company had intercompany sales of certain intangible operating assets between its foreign subsidiaries. The sales resulted in a 2018 net tax benefit of $46,369. For the year ended December 31, 2018, the impact of adopting ASU 2016‑16 resulted in a reduction of $45,596 in Provision of income taxes, as well as a $45,596 increase in Deferred income taxes (asset) and Net income, compared to what the Company would have recognized under previous U.S. GAAP. Furthermore, the impact of adoption resulted in a $0.16 increase in both basic and diluted earnings per share for the year ended December 31, 2018.

Revenue Recognition—On January 1, 2019, the Company adopted Topic 606, which supersedes substantially all existing revenue recognition guidance under U.S. GAAP. The Company adopted Topic 606 using the modified retrospective method, under which the cumulative effect of initially applying Topic 606 of $125,464  ($101,489, net of tax) was recorded as a cumulative decrease to the opening balance of Accumulated deficit as of January 1, 2019. The Company applied the standard only to contracts that were not completed as of the date of initial application. The comparative information has not been adjusted and continues to be reported under Topic 605.

The core principle of Topic 606 is to recognize revenue when promised goods or services are transferred to a customer in an amount that reflects the consideration that is expected to be received for those goods or services. Under the new guidance, the Company is required to evaluate revenue recognition through a five‑step process: (1) identify a contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation. The standard also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In applying the principles of Topic 606, more judgment and estimates are required within the revenue recognition process than was required under previous U.S. GAAP, including identifying performance obligations, estimating the amount of variable consideration to include in the transaction price, and estimating the value of each performance obligation to allocate the total transaction price to each separate performance obligation.

The most significant impact to the Company resulting from the adoption of Topic 606 relates to timing of revenue recognition for perpetual licenses and the accounting for certain of the Company’s subscription arrangements that include term‑based software licenses bundled with support. Under prior guidance, revenue for perpetual licenses was recognized ratably over a three‑year period, while revenue attributable to the term‑based software licenses was recognized ratably over the term. Under Topic 606, both perpetual license and term‑based software license revenue will be recognized up‑front upon delivery of the software license. Revenue recognition related to support, hosting, usage‑based offerings, and services is substantially unchanged, with support and hosting revenue recorded ratably over the contract term, usage‑based revenue recognized upon usage or delivery, and services revenue as delivered.

Costs to Obtain a Contract with a Customer—With the adoption of Topic 606, the Company also adopted ASC Topic 340‑40, Other Assets and Deferred Costs‑Contracts with Customers (Topic 340‑40). Prior to the adoption of Topic 340‑40, the Company previously recognized compensation paid to sales employees and certain channel partners related to obtaining customer contracts when incurred. Under Topic 340‑40, the Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year. The contract costs are amortized based on the economic life of the goods and services to which the contract costs relate. The Company has determined that certain sales incentive programs meet the requirements to be capitalized. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include the Company’s internal sales force compensation program and certain channel partner sales incentive programs for which the annual compensation is commensurate with annual sales activities. Under the modified retrospective method, the Company recorded a cumulative decrease of $7,734  ($6,333, net of tax) to the opening balance of Accumulated deficit as of January 1, 2019. The comparative information has not been adjusted and continues to be reported as incurred.

Quantitative Effect of Topics 606 and 340‑40 Adoption

The following tables compare the reported consolidated balance sheet and statements of operations, as of and for the year ended December 31, 2019, to the amounts had Topic 605 been in effect.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 

 

 

2018

 

2019

 

 

 

 

 

 

 

 

Impact from

 

 

 

 

 

 

 

 

 

 

 

the adoption of

 

 

 

 

 

As reported

 

As adjusted

 

Topic 606 and

 

As reported

 

 

Topic 605

 

Topic 605

 

Topic 340-40

 

Topic 606

Assets

    

 

  

    

 

  

    

 

  

    

 

  

Current assets

 

 

  

 

 

  

 

 

  

 

 

  

Cash and cash equivalents

 

$

81,183

 

$

121,101

 

$

 —

 

$

121,101

Accounts receivable, net

 

 

184,565

 

 

204,268

 

 

233

 

 

204,501

Prepaid income taxes

 

 

5,085

 

 

6,732

 

 

(2,189)

 

 

4,543

Prepaid and other current assets(1)

 

 

12,390

 

 

20,080

 

 

3,333

 

 

23,413

Total current assets

 

 

283,223

 

 

352,181

 

 

1,377

 

 

353,558

Property and equipment, net

 

 

29,393

 

 

29,632

 

 

 —

 

 

29,632

Intangible assets, net

 

 

54,001

 

 

46,313

 

 

 —

 

 

46,313

Goodwill

 

 

446,318

 

 

480,065

 

 

 —

 

 

480,065

Investment in joint venture

 

 

 —

 

 

1,725

 

 

 —

 

 

1,725

Deferred income taxes

 

 

81,066

 

 

72,611

 

 

(21,543)

 

 

51,068

Other assets(1)

 

 

29,595

 

 

26,517

 

 

5,721

 

 

32,238

Total assets

 

$

923,596

 

$

1,009,044

 

$

(14,445)

 

$

994,599

Liabilities and Stockholders’ Equity

 

 

  

 

 

  

 

 

  

 

 

  

Current liabilities

 

 

  

 

 

  

 

 

  

 

 

  

Accounts payable

 

$

8,567

 

$

17,669

 

$

 —

 

$

17,669

Accruals and other current liabilities

 

 

136,699

 

 

167,225

 

 

292

 

 

167,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

2018

 

2019

 

 

 

 

 

 

 

 

Impact from

 

 

 

 

 

 

 

 

 

 

 

the adoption of

 

 

 

 

 

As reported

 

As adjusted

 

Topic 606 and

 

As reported

 

 

Topic 605

 

Topic 605

 

Topic 340-40

 

Topic 606

Deferred revenues

    

 

287,682

    

 

282,070

    

 

(77,079)

    

 

204,991

Income taxes payable

 

 

2,794

 

 

1,030

 

 

1,206

 

 

2,236

Total current liabilities

 

 

435,742

 

 

467,994

 

 

(75,581)

 

 

392,413

Long-term debt

 

 

258,750

 

 

233,750

 

 

 —

 

 

233,750

Deferred revenues

 

 

49,769

 

 

56,121

 

 

(47,967)

 

 

8,154

Deferred income taxes

 

 

10,470

 

 

7,627

 

 

633

 

 

8,260

Income taxes payable

 

 

12,904

 

 

6,321

 

 

1,819

 

 

8,140

Other liabilities

 

 

8,530

 

 

9,263

 

 

 —

 

 

9,263

Total liabilities

 

 

776,165

 

 

781,076

 

 

(121,096)

 

 

659,980

Stockholders’ equity

 

 

  

 

 

  

 

 

  

 

 

  

Common stock

 

 

2,502

 

 

2,548

 

 

 —

 

 

2,548

Additional paid-in capital

 

 

392,896

 

 

408,667

 

 

 —

 

 

408,667

Accumulated other comprehensive loss

 

 

(29,414)

 

 

(23,086)

 

 

(841)

 

 

(23,927)

Accumulated deficit(2)

 

 

(218,553)

 

 

(160,161)

 

 

107,492

 

 

(52,669)

Total stockholders’ equity

 

$

147,431

 

$

227,968

 

$

106,651

 

$

334,619

Total liabilities and stockholders’ equity

 

$

923,596

 

$

1,009,044

 

$

(14,445)

 

$

994,599

(1)

As of December 31, 2019, contract cost assets of $2,690 were included in Prepaid and other current assets and $5,235 were included in Other assets.

(2)

Included in Accumulated deficit on the opening balance of January 1, 2019 is $107,822, net of tax, for the cumulative effect adjustment of adopting Topics 606 and 340‑40.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

 

 

2018

 

2019

 

 

 

 

 

 

 

 

Impact from

 

 

 

 

 

 

 

 

 

 

 

the adoption of

 

 

 

 

 

As reported

 

As adjusted

 

Topics 606

 

As reported

 

 

Topic 605

 

Topic 605

 

and 340-40

 

Topic 606

Revenues:

    

 

  

    

 

  

    

 

  

    

 

  

Subscriptions

 

$

557,421

 

$

613,925

 

$

(5,625)

 

$

608,300

Perpetual licenses

 

 

61,065

 

 

52,519

 

 

7,174

 

 

59,693

Subscriptions and licenses

 

 

618,486

 

 

666,444

 

 

1,549

 

 

667,993

Services

 

 

73,224

 

 

68,405

 

 

256

 

 

68,661

Total revenues

 

 

691,710

 

 

734,849

 

 

1,805

 

 

736,654

Cost of revenues:

 

 

  

 

 

  

 

 

  

 

 

  

Cost of subscriptions and licenses

 

 

55,113

 

 

71,439

 

 

139

 

 

71,578

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

 

 

2018

 

2019

 

 

 

 

 

 

 

 

Impact from

 

 

 

 

 

 

 

 

 

 

 

the adoption of

 

 

 

 

 

As reported

 

As adjusted

 

Topics 606

 

As reported

 

 

Topic 605

 

Topic 605

 

and 340-40

 

Topic 606

Cost of services

    

 

76,211

    

 

72,572

    

 

 —

    

 

72,572

Total cost of revenues

 

 

131,324

 

 

144,011

 

 

139

 

 

144,150

Gross profit

 

 

560,386

 

 

590,838

 

 

1,666

 

 

592,504

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Research and development

 

 

175,032

 

 

183,552

 

 

 —

 

 

183,552

Selling and marketing

 

 

160,635

 

 

155,274

 

 

20

 

 

155,294

General and administrative

 

 

89,328

 

 

97,580

 

 

 —

 

 

97,580

Amortization of purchased intangibles

 

 

14,000

 

 

14,213

 

 

 —

 

 

14,213

Total operating expenses

 

 

438,995

 

 

450,619

 

 

20

 

 

450,639

Income from operations

 

 

121,391

 

 

140,219

 

 

1,646

 

 

141,865

Interest expense, net

 

 

(8,765)

 

 

(8,199)

 

 

 —

 

 

(8,199)

Other income (expense), net

 

 

236

 

 

(5,557)

 

 

 —

 

 

(5,557)

Income before income taxes

 

 

112,862

 

 

126,463

 

 

1,646

 

 

128,109

Provision for income taxes

 

 

(29,250)

 

 

21,762

 

 

1,976

 

 

23,738

Equity in loss of joint venture, net of tax

 

 

 —

 

 

1,275

 

 

 —

 

 

1,275

Net income

 

$

142,112

 

$

103,426

 

$

(330)

 

$

103,096