Summary of Significant Accounting Policies

9 Months Ended

Jun. 30, 2019

Summary of Significant Accounting Policies

Recently Adopted Accounting Standards

Revenue Recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers: Topic 606" ("ASC 606"), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. We adopted ASC 606 on October 1, 2018 using the modified retrospective approach, with a cumulative adjustment to retained earnings as opposed to retrospectively adjusting prior periods.

Results for reporting periods beginning after October 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies under "Revenue Recognition: Topic 605" ("ASC 605"). For contracts that were modified before the effective date, the Company aggregated the effect of all contract modifications prior to identifying performance obligations and allocating transaction price in accordance with the practical expedient ASC 606-10-65-1-(f)-4.

Upon adoption of ASC 606 on October 1, 2018, we recorded a decrease to Accumulated deficit of approximately $233 million as a result of the transition. The impact of the adoption primarily relates to the cumulative effect of (1) approximately $70 million decrease in Deferred revenue from the upfront recognition of term licenses and the general requirement to allocate the transaction price on a relative stand-alone selling price, (2) approximately $180 million increase in contract assets, (3) approximately $30 million decrease in Accounts receivable, (4) approximately $30 million increase in Deferred costs, and (5) approximately $20 million increase in Deferred tax liabilities related to the above items.

The following tables summarize the impact of adopting ASC 606 on the Company’s condensed consolidated statement of operations for the three and nine months ended June 30, 2019 and the condensed consolidated balance sheet as of June 30, 2019 (dollars in thousands):



	For the Three Months Ended June 30, 2019
	As reported, ASC 606		Effect of Implementation			As adjusted, ASC 605
Revenues:
Hosting and professional services	$	260,902	$	7,943		$	268,845
Product and licensing	121,809		5,579			127,388
Maintenance and support	66,486		(4,387		)	62,099
Total revenues	$	449,197	$	9,135		$	458,332

Cost of revenues:
Hosting and professional services	$	154,397	$	6,555		$	160,952
Product and licensing	19,207		(1,496		)	17,711
Maintenance and support	8,192		215			8,407
Amortization of intangible assets	8,895		—			8,895
Total cost of revenues	$	190,691	$	5,274		$	195,965

Sales and marketing	$	72,229	$	1,603		$	73,832

Provision for income taxes	$	7,786	$	(650	)	$	7,136



	For the Nine Months Ended June 30, 2019
	As reported, ASC 606		Effect of Implementation			As adjusted, ASC 605
Revenues:
Hosting and professional services	$	771,601	$	29,179		$	800,780
Product and licensing	377,349		9,502			386,851
Maintenance and support	203,484		(20,146		)	183,338
Total revenues	$	1,352,434	$	18,535		$	1,370,969

Cost of revenues:
Hosting and professional services	$	471,204	$	3,302		$	474,506
Product and licensing	61,897		(12,941		)	48,956
Maintenance and support	24,919		262			25,181
Amortization of intangible assets	27,700		—			27,700
Total cost of revenues	$	585,720	$	(9,377	)	$	576,343

Sales and marketing	$	223,343	$	1,023		$	224,366

Provision for income taxes	$	7,814	$	10,029		$	17,843



	As of June 30, 2019
	As reported, ASC 606			Effect of Implementation			As adjusted, ASC 605
Assets:
Accounts receivable	$	313,599		$	26,611		$	340,210
Prepaid expenses and other current assets	$	193,795		$	(65,621	)	$	128,174
Other assets	$	241,271		$	(121,462	)	$	119,809

Liabilities:
Deferred revenue, current	$	310,586		$	36,191		$	346,777
Deferred revenue, noncurrent	$	410,897		$	19,882		$	430,779
Deferred tax liabilities	$	45,456		$	(10,026	)	$	35,430
Other long-term liabilities	$	97,858		$	(11,252	)	$	86,606

Stockholders' Equity:
Accumulated deficit	$	(401,741	)	$	(195,117	)	$	(596,858	)

Statements of Cash Flows

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"), which is effective for fiscal years beginning after December 15, 2017 and the interim periods therein. We adopted this guidance on October 1, 2018 and applied it retrospectively. The adoption did not have a material impact on our condensed consolidated statements of cash flows.

Financial Instruments

In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"). ASU 2016-01 amends the guidance on the classification and measurement of financial instruments. We adopted ASU 2016-01 as of January 1, 2018 using the modified retrospective method. The adoption did not have a material impact on our condensed consolidated financial statements.

Issued Accounting Standards Not Yet Adopted

Leases

In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASC 842"). ASC 842 requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. ASC 842 is effective for us in the first quarter of fiscal year 2020, and early application is permitted. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases Topic 842 Targeted Improvements, which provides an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. We intend to adopt the guidance as of October 1, 2019 under the modified retrospective approach and elect the package of practical expedients under the transition guidance.

We are currently evaluating the impact of ASC 842 and expect to recognize $110 million to $145 million of operating lease right-of-use assets and $130 million to $175 million operating lease obligations. We do not expect the adoption of the guidance to have a material impact on our consolidated statements of operations or consolidated statements of cash flows.

Other Accounting Pronouncements

In August 2018, the 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" ("ASU 2018-15"), which is effective for fiscal year beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance requires that implementation costs related to a hosting arrangement that is a service contract be capitalized and amortized over the term of the hosting arrangement, starting when the module or component of the

hosting arrangement is ready for its intended use. The guidance will be applied retrospectively to each period presented. We do not expect the implementation to have a material impact on our condensed consolidated financial statements.

In January 2018, the FASB issued ASU No. 2018-02, "Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("AOCI"), which is effective for fiscal years beginning after December 15, 2018 and interim periods therein, with early adoption permitted. The guidance gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Cuts and Jobs Act ("TCJA") related to items in AOCI. The new guidance may be applied retrospectively to each period in which the effect of TCJA is recognized in the period of adoption. We do not expect the implementation to have a material impact on our condensed consolidated financial statements.