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REVENUE RECOGNITION | 3 Months Ended
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Mar. 31, 2020
Revenue from Contract with Customer [Abstract] |
REVENUE RECOGNITION | REVENUE RECOGNITION The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"), which it adopted on January 1, 2018 using the modified retrospective method. The Company derives revenues from two primary sources: products and services. Product revenue includes the Company's hardware and software that function together to deliver the products' essential functionality. Software and hardware are also sold on a standalone basis. Services include customer support (software updates, upgrades and technical support), consulting, design services, installation services and training. Generally, contracts with customers contain multiple performance obligations, consisting of products and services. For these contracts, the Company accounts for individual performance obligations separately if they are considered distinct. When an arrangement contains more than one performance obligation, the Company will generally allocate the transaction price to each performance obligation on a relative standalone selling price basis. The best evidence of a standalone selling price is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers. If the good or service is not sold separately, an entity must estimate the standalone selling price by using an approach that maximizes the use of observable inputs. Acceptable estimation methods include but are not limited to: (1) adjusted market assessment; (2) expected cost plus a margin; and (3) a residual approach (when the standalone selling price is not directly observable and is either highly variable or uncertain). The Company's software licenses typically provide a perpetual right to use the Company's software. The Company also sells term-based software licenses that expire and Software-as-a-Service ("SaaS")-based software which are referred to as subscription arrangements. The Company does not customize its software nor are installation services required, as the customer has a right to utilize internal resources or a third-party service company. The software and hardware are delivered before related services are provided and are functional without professional services or customer support. The Company has concluded that its software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own. The product revenue is typically recognized upon transfer of control or when the software is made available for download, as this is the point that the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property. The Company does not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the subscription period. Hardware product is generally sold with software to provide the customer solution. Services revenue includes revenue from customer support and other professional services. The Company offers warranties on its products. Certain of the Company's warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended. Based on the guidance in ASC 606, assurance-type warranties do not represent separate performance obligations. The Company also sells separately-priced maintenance service contracts, which qualify as service-type warranties and represent separate performance obligations. The Company does not allow and has no history of accepting product returns. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. The Company sells its customer support contracts at a percentage of list or net product price related to the support. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year. The Company's professional services include consulting, technical support, resident engineer services, design services and installation services. Because control transfers over time, revenue is recognized based on progress toward completion of the performance obligation. The method to measure progress toward completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the input method to measure progress for its contracts because it believes such method best depicts the transfer of assets to the customer, which occurs as the Company incurs costs for the contracts. Under the cost-to-cost measure of progress, the progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. When the measure of progress is based upon expended labor, progress toward completion is measured as the ratio of labor time expended to date versus the total estimated labor time required to complete the performance obligation. Revenue is recorded proportionally as costs are incurred or labor is expended. Costs to fulfill these obligations include internal labor as well as subcontractor costs. Customer training includes courses offered by the Company. The related revenue is typically recognized as the training services are performed. The Company's typical performance obligations include the following:
Performance Obligation |  | When Performance Obligation is Typically Satisfied |  | When Payment is Typically Due
Software and Product Revenue |  |  |  |
Software licenses (perpetual or term) |  | Upon transfer of control; typically, when made available for download (point in time) |  | Generally, within 30 days of invoicing except for term licenses, which may be paid for over time
Software licenses (subscription) |  | Upon activation of hosted site (over time) |  | Generally, within 30 days of invoicing
Appliances |  | When control of the appliance passes to the customer; typically, upon delivery (point in time) |  | Generally, within 30 days of invoicing
Software upgrades |  | Upon transfer of control; typically, when made available for download (point in time) |  | Generally, within 30 days of invoicing
Customer Support Revenue |  |  |  |
Customer support |  | Ratably over the course of the support contract (over time) |  | Generally, within 30 days of invoicing
Professional Services |  |  |  |
Other professional services (excluding training services) |  | As work is performed (over time) |  | Generally, within 30 days of invoicing (upon completion of services)
Training |  | When the class is taught (point in time) |  | Generally, within 30 days of services being performed
Significant Judgments The Company's contracts with customers often include promises to transfer multiple products and services to the customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is required to determine the standalone selling price ("SSP") for each distinct performance obligation. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the size of the customer and geographic region in determining the SSP. Deferred Revenue Deferred revenue is a contract liability representing amounts collected from or invoiced to customers in excess of revenue recognized. This results primarily from the billing of annual customer support agreements where the revenue is recognized over the term of the agreement. The value of deferred revenue will increase or decrease based on the timing of recognition of revenue. Disaggregation of Revenue The Company disaggregates its revenue from contracts with customers based on the nature of the products and services and the geographic regions in which each customer is domiciled. The Company's revenue for the three months ended March 31, 2020 and 2019 was disaggregated as follows:
Three months ended March 31, 2020 | Product revenue |  | Service revenue (maintenance) |  | Service revenue (professional services) |  | Total revenue
United States | $ | 36,365 |  |  | $ | 31,466 |  |  | $ | 10,566 |  |  | $ | 78,397 |
Europe, Middle East and Africa | 20,365 |  |  | 14,810 |  |  | 4,015 |  |  | 39,190 |
Japan | 4,952 |  |  | 2,874 |  |  | 2,614 |  |  | 10,440 |
Asia Pacific | 9,991 |  |  | 4,637 |  |  | 2,264 |  |  | 16,892 |
Other | 4,226 |  |  | 7,281 |  |  | 1,556 |  |  | 13,063 |
| $ | 75,899 |  |  | $ | 61,068 |  |  | $ | 21,015 |  |  | $ | 157,982 |
Three months ended March 31, 2019 | Product revenue |  | Service revenue (maintenance) |  | Service revenue (professional services) |  | Total revenue
United States | $ | 28,446 |  |  | $ | 32,787 |  |  | $ | 7,343 |  |  | $ | 68,576 |
Europe, Middle East and Africa | 6,458 |  |  | 10,723 |  |  | 2,849 |  |  | 20,030 |
Japan | 3,961 |  |  | 2,913 |  |  | 1,562 |  |  | 8,436 |
Asia Pacific | 4,675 |  |  | 3,663 |  |  | 869 |  |  | 9,207 |
Other | 3,940 |  |  | 6,903 |  |  | 1,836 |  |  | 12,679 |
| $ | 47,480 |  |  | $ | 56,989 |  |  | $ | 14,459 |  |  | $ | 118,928 |
The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three months ended March 31, 2020 and 2019 was as follows (in thousands):
| Three months ended
| March 31, 2020 |  | March 31, 2019
Indirect sales through channel partner program | $ | 28,604 |  |  | $ | 19,174 |
Direct sales | 47,295 |  |  | 28,306 |
| $ | 75,899 |  |  | $ | 47,480 |
The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three months ended March 31, 2020 and 2019 was as follows (in thousands):
| Three months ended
| March 31, 2020 |  | March 31, 2019
Sales to enterprise customers | $ | 27,281 |  |  | $ | 14,755 |
Sales to service provider customers | 48,618 |  |  | 32,725 |
| $ | 75,899 |  |  | $ | 47,480 |
Revenue Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable; unbilled receivables, which are contract assets; and customer advances and deposits, which are contract liabilities, in the Company's condensed consolidated balance sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Completion of services and billing may occur subsequent to revenue recognition, resulting in contract assets. The Company may receive advances or deposits from its customers before revenue is recognized, resulting in contract liabilities that are classified as deferred revenue. These assets and liabilities are reported in the Company's condensed consolidated balance sheets on a contract-by-contract basis as of the end of each reporting period. Changes in the contract asset and liability balances during the three months ended March 31, 2020 were not materially impacted by any factors other than billing and revenue recognition. Nearly all of the Company's deferred revenue balance is related to services revenue, primarily customer support contracts. Unbilled receivables stem primarily from engagements where services have been performed; however, billing cannot occur until services are completed. In some arrangements, the Company allows customers to pay for term-based software licenses and products over the term of the software license. The Company also sells SaaS-based software under subscription arrangements, with payment terms over the term of the SaaS agreement. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables that are anticipated to be invoiced in the next twelve months are included in Accounts receivable on the Company's condensed consolidated balance sheets. The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the three months ended March 31, 2020 were as follows (in thousands):
| Accounts receivable |  | Unbilled accounts receivable |  | Deferred revenue (current) |  | Deferred revenue (long-term)
Balance at January 1, 2020 | $ | 168,502 |  |  | $ | 24,204 |  |  | $ | 100,406 |  |  | $ | 20,482 |
Increase (decrease), net | 1,286 |  |  | 11,801 |  |  | 13,293 |  |  | 5,429 |
Balance at March 31, 2020 | $ | 169,788 |  |  | $ | 36,005 |  |  | $ | 113,699 |  |  | $ | 25,911 |
The Company recognized approximately $41 million of revenue in the three months ended March 31, 2020 that was recorded as deferred revenue at December 31, 2019 and approximately $33 million of revenue in the three months ended March 31, 2019 that was recorded as deferred revenue at December 31, 2018. Of the Company's deferred revenue reported as long-term in its condensed consolidated balance sheet at March 31, 2020, the Company expects that approximately $12 million will be recognized as revenue in 2021, approximately $8 million will be recognized as revenue in 2022 and approximately $6 million will be recognized as revenue in 2023 and beyond. All freight-related customer invoicing is recorded as revenue, while the shipping and handling costs that occur after control of the promised goods or services transfer to the customer are reported as fulfillment costs, a component of Cost of revenue - product in the Company's condensed consolidated statements of operations. Deferred Commissions Cost Sales commissions earned by the Company's employees are considered incremental and recoverable costs of obtaining a contract with a customer. Expense related to commission payments has been deferred on our condensed consolidated balance sheet and is being amortized over the expected life of the customer contract, which averages five years. At both March 31, 2020 and December 31, 2019, the Company had $3.6 million of deferred sales commissions capitalized.

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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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