Revenue Recognition

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

REVENUE RECOGNITION

We sell cybersecurity solutions to a variety of organizations, such as enterprises, communication service providers, government organizations and small businesses. Our revenue consists of product and service revenue. Product revenue is generated by our FortiGate network security appliances, our Fortinet Security Fabric platform products and other products. Service revenue relates to sales of our security subscription services, which mainly consist of our FortiGuard security solutions, as well as our FortiCare technical support services and other services.

Disaggregation of Revenue

The following table presents our revenue disaggregated by major product and service lines (in millions):

	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Product	$	223.8	$	197.1	$	628.0	$	549.7
Service:
Security subscription	235.4		192.8		669.4		545.5
Technical support and other	191.9		158.2		549.0		449.7
Total service revenue	427.3		351.0		1,218.4		995.2
Total revenue	$	651.1	$	548.1	$	1,846.4	$	1,544.9

Deferred Revenue

During the three months ended September 30, 2020 and September 30, 2019, we recognized $263.1 million and $211.8 million in service revenue that was included in the deferred revenue balance as of December 31, 2019 and December 31, 2018, respectively. During the nine months ended September 30, 2020 and September 30, 2019, we recognized $921.7 million and $754.5 million in service revenue that was included in the deferred revenue balance as of December 31, 2019 and December 31, 2018, respectively.

Transaction Price Allocated to the Remaining Performance Obligations

As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $2.39 billion, which was substantially comprised of deferred security subscription and technical support services revenue. We expect to recognize approximately $1.30 billion as revenue over the next 12 months and the remainder thereafter.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount. On January 1, 2020, we adopted Topic 326, which provides guidance on how to measure credit losses on financial instruments, including accounts receivable. Prior to our adoption of Topic 326, our accounts receivable balance was reduced by an allowance for doubtful accounts that we determined based on our assessment of the collectability of customer accounts. Under Topic 326, our accounts receivable balance is reduced by an allowance for expected credit losses. We measure expected credit losses of accounts receivable on a collective (pooled) basis, aggregating accounts receivable that are either current or no more than 60 days past due, and aggregating accounts receivable that are more than 60 days past due. We apply a credit-loss percentage to each of the pools that is based on our historical credit losses. We review whether each of our significant accounts receivable that is more than 60 days past due continues to exhibit similar risk characteristics with the other accounts receivable in the pool. If we determine that it does not, we evaluate it for expected credit losses on an individual basis.

The COVID-19 pandemic and the recent economic downturn prompted us to perform additional credit reviews of our existing customers, including obtaining recent credit reports and reviewing their latest available statements of financial position. In addition, we have seen an increase in requests for extended payment terms. After performing our additional reviews, we increased the allowance for credit losses for certain accounts receivable.

The allowance for credit losses was $2.2 million as of September 30, 2020, and the allowance for doubtful accounts was $1.2 million as of December 31, 2019. Provisions, write-offs and recoveries were not material during the nine months ended September 30, 2020.

Deferred Contract Costs

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. The amortization of deferred contract costs is included in sales and marketing expense in our condensed consolidated statements of income. Amortization of deferred contract costs during the three months ended September 30, 2020 and September 30, 2019 were $35.3 million and $27.5 million, respectively. Amortization of deferred contract costs during the nine months ended September 30, 2020 and September 30, 2019 were $99.8 million and $78.5 million, respectively.