Note 4 – Revenue

We recognize revenue in accordance with ASC 606 “Revenue from Contracts with Customers” (“Topic 606”), as described in Note 1 – Summary of Significant Accounting Policies. As described in Note 1, the Company adopted Topic 606 on January 1, 2018, using the modified retrospective method. The cumulative effect of initially applying Topic 606 was an adjustment to the opening balance of Accumulated Income of $11.9 million, net of tax, as of January 1, 2018.

Significant Impacts of Adoption

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 vendor-specific objective evidence (“ 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. No significant obligations or contingencies exist with regard to delivery, customer acceptance or rights of returns at the time revenue is recognized. 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 recognized when the term license revenues are recognized. For large-volume transactions, we may negotiate a specific price that is based on the number of users of the software license or quantities of hardware supplied. The per unit prices for large-volume transactions are generally lower than transactions for smaller quantities and the price differences are commonly referred to as volume-purchase discounts.

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 expensed 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 continued 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 (in thousands)


		Twelve months ended December 31,
	2019		2018			2017*
Hardware products	$	127,005	$	105,560	$	105,867
Software licenses		57,168		47,417		41,390
Subscription		22,250		15,426		10,296
Professional services		5,759		5,743		4,891
Maintenance, support and other		42,388		38,134		30,847
Total Revenue	$	254,570	$	212,280	$	193,291

Revenue by location of customer for the years ended December 31, 2019, 2018, and 2017 (in thousands)



	EMEA			Americas			APAC			Total
Total Revenue:
2019	$	147,027		$	61,577		$	45,966		$	254,570
2018	$	103,293		$	54,979		$	54,008		$	212,280
2017*	$	92,859		$	52,981		$	47,451		$	193,291


Percent of Total:
2019		58	%		24	%		18	%		100	%
2018		49	%		26	%		25	%		100	%
2017*		48	%		27	%		25	%		100	%

*Amounts for the year ended December 31, 2017 are presented under ASC 605 and ASC 985-605.

Timing of revenue recognition (in thousands)


	Year ended December 31,
	2019		2018
Products and Licenses transferred at a point in time	$	184,173	$	152,977
Services transferred over time		70,397		59,303
Total Revenue	$	254,570	$	212,280

Contract balances

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


		December 31,
	2019		2018
Receivables, inclusive of trade and unbilled	$	62,405	$	59,631
Contract Assets (current and non-current)	$	10,623	$	11,278
Contract Liabilities (Deferred Revenue current and non-current)	$	45,597	$	44,305

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.

Revenue recognized during the twelve months ended December 31, 2019 included $34.7 million that was included on the December 31, 2018 balance sheet in contract liabilities. Deferred revenue increased in the same period due to timing of annual renewals.

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.


in thousands	2020		2021		2022		Beyond 2022		Total
Future revenue related to current unsatisfied performance obligations	$	11,295	$	7,682	$	5,951	$	10,986	$	35,914

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. We determined the period of benefit by taking into consideration our customer contracts, our technology and other factors, including customer attrition. Commissions are earned upon invoicing to the customer. For contracts with multiple year payment terms, as the commissions that are payable after year 1 are payable based on continued employment, they are expensed when incurred. Commissions and amortization expense are 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.

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



in thousands		December 31, 2019		December 31, 2018
Capitalized costs to obtain contracts, current	$	676	$	413
Capitalized costs to obtain contracts, non-current	$	3,222	$	2,150


		Year ended December 31,
in thousands		2019		2018
Amortization of capitalized costs to obtain contracts	$	495	$	283
Impairments of capitalized costs to obtain contracts	$	-	$	-

Topic 606 Adoption impacts on Financial Statements

The following tables summarize the impacts of adopting Topic 606 on the Company’s consolidated financial statements as of December 31, 2018 and for the year ended December 31, 2018.

Balance Sheet (in thousands)


	December 31, 2018
	As Reported		Adjustments		Balances without the adoption of Topic 606
ASSETS
Current assets
Accounts receivable, net of allowance	$	59,631	$	(331)	$	59,300
Contract asset		7,962		(7,962)		—
Other current assets		5,705		(703)		5,002
Total current assets		191,956		(8,996)		182,960
Deferred income taxes		5,601		587		6,188
Contract asset - non-current		3,316		(3,316)		—
Other assets		8,400		(289)		8,111
Total assets	$	352,826	$	(12,014)	$	340,812
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Deferred revenue	$	33,633	$	3,019	$	36,652
Short-term income taxes payable		6,905		(1,209)		5,696
Other accrued expenses		9,323		(116)		9,207
Total current liabilities		72,357		1,694		74,051
Deferred revenue - non-current		10,672		3,391		14,063
Deferred income taxes		2,661		(424)		2,237
Total liabilities		100,385		4,661		105,046
Stockholders' equity
Accumulated income		172,378		(16,675)		155,703
Total stockholders' equity		252,441		(16,675)		235,766
Total liabilities and stockholders' equity	$	352,826	$	(12,014)	$	340,812

Statement of Operations (in thousands)


	Year ended December 31, 2018
	As Reported		Adjustments		Balances without the adoption of Topic 606
Revenue
Product and license	$	152,977	$	2,365	$	155,342
Services and other		59,303		(5,772)		53,531
Total revenue		212,280		(3,407)		208,873

Cost of goods sold
Product and license		50,706		605		51,311
Services and other		14,107		—		14,107
Total Cost of goods sold		64,813		605		65,418

Gross profit		147,467		(4,012)		143,455

Operating Costs
Sales and marketing		63,805		1,108		64,913
Total operating costs		147,443		1,108		148,551

Operating income (loss)		24		(5,120)		(5,096)

Income (loss) before taxes		3,553		(5,120)		(1,567)

Provision (benefit) for income taxes		(293)		(365)		(658)

Net income (loss)	$	3,846	$	(4,755)	$	(909)

Basic EPS	$	0.10			$	(0.02)
Diluted EPS	$	0.10			$	(0.02)

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