Note 2 – Revenue

The Company adopted Topic 606 Revenue from Contracts with Customers with a date of the initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed below.

The Company applied Topic 606 using the modified retrospective method – i.e. by recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of Accumulated Income at January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. The details of the significant changes and quantitative impact of the changes are set out below.

Term Licenses

For revenues generated from arrangements that included term licenses to our software, the Company previously recognized revenue ratably over the term of the contract when VSOE did not exist for all undelivered elements. Under Topic 606, these licenses are considered licenses of functional intellectual property, which requires recognition at the point in time all of the revenue recognition criteria per Topic 606 are met, which for the Company is generally when the customer is provided access to the software and the license term has commenced. We have established a stand-alone selling price (SSP) for all other performance obligations in the contract. Accordingly, the Company now recognizes revenue from these licenses, based on the residual approach due to highly variable pricing, at the beginning of the license period and recognizes the transaction price allocated to the other performance obligations in the contract (typically maintenance and support) over the period in which those performance obligations are satisfied. This is consistent with the method of recognizing revenue for perpetual licenses of intellectual property. Fees paid to third party software providers in term license arrangements are now recognized under Topic 606 when the term license revenues are recognized.

Sales Commissions

The Company incurs incremental costs related to commissions, which can be directly tied to obtaining a contract. For commissions earned by sales personnel, the Company previously recognized these amounts when they were earned by the employees. As a result of adopting Topic 606, the Company now capitalizes commissions associated with new customers and amortizes the costs over a period in which the Company is expected to benefit, which can be up to seven years. The amortization is reflected in Sales and Marketing in the statement of operations. For certain contracts, any commission that is subject to a service period, such as employment, is expensed as incurred within Sales and Marketing in the statement of operations.

Disaggregation of Revenues

The following tables present our revenues disaggregated by major products and services, geographical region and timing of revenue recognition.

Revenue by major products and services


	For the three months ended March 31,
	2018		2017*

Hardware products	$	17,491	$	21,744
Software licenses		16,003		9,816
Subscription		2,970		2,115
Professional services		964		961
Maintenance, support and other		8,004		7,329

Total Revenue	$	45,432	$	41,965

* Prior period amounts are presented under ASC 605 and 985-605

Revenue by location of customer


	EMEA			Americas			APAC			Total

Total Revenue:
2018	$	18,387		$	15,921		$	11,124		$	45,432
2017*	$	18,370		$	12,124		$	11,471		$	41,965



Percent of Total:
2018		40	%		35	%		25	%		100	%
2017*		44	%		29	%		27	%		100	%
* Prior period amounts are presented under ASC 605 and 985-605

Timing of revenue recognition


	For the three months ended March 31,
	2018

Products and Licenses transferred at a point in time	$	33,494
Services transferred over time		11,938

Total Revenue	$	45,432

Impacts on Financial Statements

The following tables summarize the impacts of adopting Topic 606 on the Company’s consolidated financial statements for the three months ended March 31, 2018.

Balance Sheet


	As of March 31, 2018
	As Reported		Adjustments		Balances without the adoption of Topic 606

ASSETS
Current assets
Accounts receivable, net of allowance	$	34,445	$	(276)	$	34,169
Contract asset		4,874		(4,874)		-
Other current assets		4,547		302		4,849
Total current assets		228,285		(4,848)		223,437
Deferred income taxes		4,975		507		5,482
Contract asset - non-current		7,488		(7,488)		—
Other assets		7,062		(30)		7,032
Total assets	$	346,868	$	(11,859)	$	335,009
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Deferred revenue	$	30,433	$	5,468	$	35,901
Short-term income taxes payable		1,435		(1,942)		(507)
Total current liabilities		57,352		3,526		60,878
Deferred revenue - non-current		6,773		89		6,862
Deferred income taxes		8,169		(424)		7,745
Total liabilities		92,642		3,191		95,833
Stockholders' equity
Accumulated income		170,319		(15,050)		155,269
Total stockholders' equity		254,226		(15,050)		239,176
Total liabilities and stockholders' equity	$	346,868	$	(11,859)	$	335,009

Statement of Operations


	For the three-months ended March 31, 2018
	As Reported		Adjustments		Balances without the adoption of Topic 606

Revenue
Product and license	$	33,494	$	(2,447)	$	31,047
Services and other		11,938		(698)		11,240
Total revenue		45,432		(3,145)		42,287

Cost of goods sold
Product and license		8,185		393		8,578
Services and other		2,550		—		2,550
Total Cost of goods sold		10,735		393		11,128

Gross profit		34,697		(3,538)		31,159

Operating Costs
Sales and marketing		14,277		382		14,659
Total operating costs		33,049		382		33,431

Operating income (loss)		1,648		(3,920)		(2,272)

Income before taxes		2,421		(3,920)		(1,499)

Provision for income tax		629		(1,019)		(390)

Net income (loss)	$	1,792	$	(2,901)	$	(1,109)

Basic EPS	$	0.04			$	(0.03)
Diluted EPS	$	0.04			$	(0.03)

The adoption of Topic 606 did not impact total operating, investing or financing cash flows in the statement of cash flows.

Contract balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.


	January 1,			March 31,
	2018			2018
Receivables, inclusive of trade and unbilled	$	48,217	$		34,445
Contract Assets (current and non-current)	$	8,167	$		12,362
Contract Liabilities (Deferred Revenue current and non-current)	$	33,752	$		37,207

Contract assets relate primarily to multi-year term license arrangements and the remaining contractual billings. These contract assets are transferred to receivables when the right to billing occurs, which is normally over 3-5 years. The contract liabilities primarily relate to the advance consideration received from customers for subscription and maintenance services. Revenue is recognized for these services over time.

As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less. We do not typically include extended payment terms in our contracts with customers.

During the three months ended March 31, 2018, the Company’s contract asset balances increased $4,200 primarily due to new term contracts exceeding billings during the period, partially offset by transfers to accounts receivable. Deferred Revenue increased in the same period due to advanced payments from annual renewals, offset by a decrease of approximately $11,000 associated with revenue recognized.

Transaction price allocated to the remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.


	2018		2019		2020		Beyond 2020		Total

Future revenue related to current unsatisfied performance obligations	$	7,242	$	5,977	$	3,064	$	2,654	$	18,937

The Company applies practical expedients and does not disclose information about remaining performance obligations a) that have original expected durations of one year or less, or b) where revenue is recognized as invoiced.

Costs of obtaining a contract

The Company incurs incremental costs related to commissions, which can be directly tied to obtaining a contract. Under Topic 606, the Company capitalizes commissions associated with certain new contracts and amortizes the costs over a period of benefit based on the transfer of goods or services that we have determined to be up to seven years. The Amortization is reflected in Sales and Marketing in the Statement of Operations. We determined the period of benefit by taking into consideration our customer contracts, our technology and other factors, including customer attrition. Commissions are payable upon receipt of payment by the customer and requires the employee to be a current employee. For contracts with multiple year payment terms, as the commissions that are payable after year 1 are payable based on continue employment, they are expensed when incurred. Commissions and amortization expense is included in Sales and Marketing expenses on the consolidated statements of operations.

Applying the practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period for the assets that the Company otherwise would have recognized is one year or less. These costs are included in Sales and Marketing expense in the consolidated statement of operations.

The following tables provides information related to the capitalized costs and amortization recognized in the period:


		Three months ended
in thousands		March 31, 2018
Capitalized costs to obtain contracts, current	$	296
Capitalized costs to obtain contracts, non-current	$	1,540


		Three months ended
in thousands		March 31, 2018
Amortization of capitalized costs to obtain contracts	$	65
Impairments of capitalized costs to obtain contracts	$	-